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Does more money mean fewer jobs?

Posted in BC Votes 2009 Reality Check Posted by CBC News on May 8, 2009 05:57 PM |

Mostly falseThe Liberal Party claim that a 25 per cent increase in the minimum wage would result in 50,000 lost jobs in B.C. is mostly false.You’ve probably heard Liberal leader Gordon Campbell on the campaign trail talking about the NDP proposal to raise the minimum wage. He says if the minimum wage is raised from the current $8/hr to $10/hr, 50,000 people will lose their jobs.

Here’s what he’s said on April 7, 2009, “we'll lose 50,000 jobs in British Columbia from that one announcement alone.”

On April 23, 2009 during the radio debate, “the wage recommendations [the NDP has] will cost 50,000 jobs in small business.”

On May 3, 2009 during the TV debate, “[Carole James] has to have the wherewithal to stand up to workers and say here's your pink slip, you're out of work.”

It’s safe to say he wants voters to come away thinking that in James gets in, they might be out…of a job.

We looked into where Campbell’s “50,000” number came from and what we found is that the jury is still out on how a 25 per cent minimum wage hike, or from $8/hr-$10/hr would affect B.C.

Trouble is most of the studies only look at a 10 per cent increase, and those mostly look at how it would affect “young” workers, generally over age 15 and under age 25. When you dig a little deeper, it turns out “50,000” actually means between 52,000 and zero, depending on who you ask.

The study the Liberals quote was done by University of Toronto economist Morley Gunderson.

Gunderson investigated raising the minimum wage from $8/hr to $10/hr for the Ontario government in 2007, by surveying a range of studies from Canada, the UK and the US.

The majority of those studies are on what would happen if minimum wage was increased by 10 per cent, so Gunderson had to model the likely effects of a 25 per cent increase, rather than being able to draw on existing studies.

In his report, Gunderson concluded, “between 11 per cent and 15 per cent of the Ontario workforce would likely have their wages directly affected by a 25 per cent increase in the general minimum wage increase to $10/hr.”

The Fraser Institute took Gunderson’s formula and applied it to B.C. stating, “a large, one-time increase in British Columbia’s minimum wage from $8/hr to $10/hr could result in an employment loss ranging from 15 per cent to 30 per cent...The employment loss in British Columbia is conservatively estimated to range from about 10,898 to 52,200 jobs, but it could be higher,” the report states.

When we reached Gunderson, he told us he would have preferred the Liberals not focus on one number, since his own study suggests a range that translates to about 25,000 to 50,000 jobs lost in BC.

He said Campbell is wrong to tell voters small business owners would start issuing pink slips, "I don't think the response is to typically go out and layoff young people. It's more to say, well, given that I have to pay$10/hr, I'll now install this equipment, and speed up this process to have fewer waiters and waitresses, and have more things prepared and stuff like that."

Why isn’t Campbell mentioning the low end?

According to Mark Thompson, a professor emeritus at UBC, “I think they are being politicians. They are advancing their point of view, and they don't have the time to engage in the conversation about where those nuances come from.”

Those nuances are apparent in the other studies and all of the ones we looked at presented a range of scenarios.

The Library of Parliament did a survey of the research and it concluded, “it is estimated that a 10 per cent increase in the minimum wage would reduce employment by between 0 and 3 per cent, and the impact on most groups is probably more closely aligned with the lower end of this range.” But, the study did conclude that the impact could be higher in Canada, as most of the data was from the U.S.

The Canadian Centre for Policy Alternatives did its own survey, and found the impact would be 1 per cent.

Thompson told us it’s hard to gauge what the result for lots of reasons, “the job market changes all of the time and it's different in B.C. then it is elsewhere because of the structure of our economy. So to isolate one event, increasing the minimum wage, means many other events, including the business cycle, prices of energy, or whatever, are ignored, so that limits the predictive power of what an increase in the minimum wage would do.”

There is an argument it may be detrimental to raise the minimum wage by 25 per cent all at once. Gunderson says it should be done gradually, and at a time when the economy is healthy.

Thompson agrees the raising the minimum wage all at one point may be a bad idea, but that an increase every so often may be good for the economy.

“I know of cases where industries have expanded based on the assumption they were going to pay a low minimum wage. I don't think that's good for the province and I think that's one of the virtues of raising the minimum wage from time to time,” Thompson told us.

So to sum up: economists can’t really predict what will happen, a minimum wage increase may be good (or bad) for the economy, and job losses might (or might not) happen.

So for Gordon Campbell to go around and say 50,000 jobs will be lost if the minimum wage is increased to $10/hr? That’s mostly false.