Minimum wage legislation perpetuates poverty and eliminates job opportunities, says a new labour market commentary published by a regional public policy think-tank.
“Minimum wage jobs are poorly targeted since poverty is related to family income relative to family need, while a minimum wage is paid to individuals irrespective of their family situation or need,” Morley Gunderson, a University of Toronto economist, said in a news release Wednesday.
“A minimum wage affects only small portions of the population and does little to increase earnings.”
Mr. Gunderson, the CIBC Chair on Youth Employment, wrote the commentary for the Atlantic Institute for Market Studies.
The minimum wage in Nova Scotia is set to increase by 19 per cent, to $9.65 an hour, by October 2010.
Mr. Gunderson said a typical minimum wage increase of 25 cents per hour, multiplied by a full-year, full-time work year of 2,000 hours, would increase annual income by $500, and the effect would be less for most earning minimum wage because almost 60 percent of them work part-time.
He said a 10 per cent increase in minimum wages reduces the employment of teenagers by three to six per cent, and slightly less for young adults.
“This adverse effect occurs in the form of slower employment growth relative to what would have happened in the absence of the minimum wage increase.”
Mr. Gunderson said there are proven alternatives to minimum wage legislation, including earnings subsidies similar to the earned-income tax credit offered in the United States and other countries.
He said Ottawa took a step in that direction with the Working Income Tax Benefit in 2007. It provided the working poor with a 20 per cent refundable tax credit of their earnings above $3,000, subject to a limit.
Hugh MacKenzie, an economist and research associate with the Canadian Centre for Policy Alternatives, said he was baffled by the assertion that minimum wage legislation perpetuates poverty.
Mr. MacKenzie said there is no evidence that modest increases in minimum wage affect employment levels. “There is some evidence that increasing minimum wages enhances disposable income, which is a positive.”
Minimum wage legislation by itself isn’t an answer to poverty, he said, but it is one of a number of solutions, including tax credits, that can address the issue.
Brian Lee Crowley, president of the Atlantic Institute for Market Studies, said Mr. Gunderson’s commentary and others to be published this month dealing with payroll taxes, mandatory retirement and replacement workers highlight important policy issues in an increasingly complex labour market.
“It may be politically expedient for politicians to increase the minimum wage, especially since it allows them to look like they are doing something about poverty at no cost to themselves, because the money costs are borne by employers,” Mr. Crowley said.