Will unemployment rise with minimum wage in B.C.?

Economist says available evidence is complicated

Decades of studies have examined minimum-wage policy, and every economist pays at least some attention to the effects that increases have on employment.

So with the NDP planning to hike the base pay in B.C. – by 50 cents to $11.35 an hour in September and gradually to $15 by 2021 – one might think economists could predict how our economy will be affected.

“The short answer is we don’t really know,” said Michael Maschek, head of the University of the Fraser Valley’s economics department.

Maschek said there are too many conflicting studies and data available to make any clear predictions.

“Our best evidence seems to change over time depending on studies, and the reason for that is it’s such a difficult thing to study,” he said.

Despite claims by those both for and against minimum-wage increases, Maschek said there is no evidence to back up the most partisan claims on each side.

Economists have historically looked at minimum-wage policy through the lens of supply and demand: If the government legislates a higher price, supply will increase and demand will decrease, leaving excess in the market – unemployment.

But in the last decade, academic studies coming out of California schools have suggested the employment effects are marginal, he said. The studies don’t provide a clear answer for why but they’ve muddied the mainstream thinking, according to Maschek.

“We [economists] can seem to flip flop depending on the studies,” he said.

Just across B.C.’s southern border, Seattle became one of the first U.S. jurisdictions to legislate a phased-in $15-an-hour minimum wage in 2014 . The base pay there is currently $13 an hour for some businesses.

Maschek pointed to a widely cited University of Washington study as an example of just how difficult it is to understand the relationship between wage increases and employment levels. The study appeared to show working hours decreased as wages rose, but Maschek says its methods were flawed.

The study compared single-location business in Seattle to those in other Washington Sate cities.

“Many businesses that you would anticipate that would be able to deal with a minimum wage [increase] very well would have multiple locations – they’d be a little larger,” he said. “That’s exceptionally problematic there and of itself.”

And Seattle is by far the largest city in Washington, making smaller communities poor comparators, he said.

“Big economies might be better able to deal with it, maybe not. It’s unknown. But when choosing comparators, you might want to look at other data,” he said.

“This is essentially why looking at these things can be so difficult.”

The messy nature of studying a single policy in a large and complicated economy makes a clear thesis near impossible. But overall, Maschek said the evidence suggests B.C.’s gradual path to a $15 minimum hourly wage will have minimal effects on the employment, while significantly improving the income of low-wage earners.

Service and agriculture sector workers stand to benefit the most in the Fraser Valley, he said.


@KelvinGawley
kelvin.gawley@abbynews.com

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Michael Maschek, head of the University of the Fraser Valley’s economics department, says it’s hard to predict how a rising minimum wage will affect an economy. Submitted