A year ago, I brought attention to a Canadian Public Policy article on poverty and the minimum wage in Ontario. A notable finding of the study was that the overlap between those who earn minimum wage and those who are in poverty was surprisingly small, small enough to conclude - as I did - that "increasing the minimum wage is only slightly more effective as an anti-poverty measure as would be distributing money at random across households." A few months later, I came across a study that found much the same results in the United States.
I knew that policy analysts in the Quebec government were working on a similar project and had heard that they had found similar results. That study has finally been made public, and is one of a set of articles on the minimum wage. Even better, it would seem that Pierre Fortin has fleshed out and put into digital form the literature survey I blogged about over here (has it really been four years?!?).
But it's this article by Jean-François Mercier and Martine Poulin that has the numbers I'm going to talk about below. A very nice feature of the study is that it pays particular attention to those earning just above minimum wage.
|Low-income families||Families above |
|Total||448 700 (13.1%)||2 979 100 (86.9%)||3 427 800 (100%)|
|In employment||193 900 (8.4%)||2 105 300 (91.6%)||2 299 200 (100%)|
|27 900 (13.5%)||178 200 (86.5%)||206 100 (100%)|
|$7.61/hr - $8.99/hr||44 200 (18.2%)||199 100 (81.8%)||243 300 (100%)|
|$9.00/hr - $9.99/hr||34 100 (17.3%)||163 400 (82.7%)||197 600 (100%)|
|Less than $10/hr||106 200 (16.4%)||540 700 (83.6%)||646 900 (100%)|
As was the case in Ontario, the proportion of minimum-wage earners in poverty (13.5%) is only slightly greater than the proportion of those in the general population who are in poverty (13.1%).
It is at this point that someone invariably claims that those in poverty are clustered just above the minimum wage, and that these people are the real targets of the measure. Well, not so much, it turns out. The incidence of poverty in this group is higher than in the general population, but it never goes above 20%. Given this weak relationship, it's hardly surprising that their policy simulation exercise found that increasing the minimum wage had only marginal effects on inequality.
Moreover - as the authors note - this marginal effect is the best-case scenario, because it is based on the assumption that increasing the minimum wage has no effect on employment. Although the effects on employment are likely to be small, they won't be zero, and - as Pierre Fortin notes in his literature survey - estimates from Canada are generally larger than in the US. A study prepared by some of my colleagues for the Quebec government puts it this way (my translation):
An increase in the minimum wage can induce firms to reduce employment in the medium to long term. The literature from Canada is unequivocal on this point. Studies by Gunderson 92005), Baker, Benjamin and Stanger (1999), Benjamin (1996), Sussman and Tabi (2004) and Statistics Canada (2005) show that workers who are most vulnerable to these effects are those with the lowest levels of education, who have been in the labour market for the shortest period of time, and who have the least seniority at their workplaces.
Studies focussing specifically on social assistance in Quebec also show that laboour market integration is more difficult at high levels of the minimum wage (Duclos et al (1996), Duclos et al (1999), Fortin et al (1999), Fortin et al (2002), Lacroix (2000)). For example, Côté (2006) finds that regardless of the type of household, increasing the minimum wage has the effect of increasing the duration of spells on social assistance. In fact, the only groups that are not negatively affected are single men over 45 and single women under 25. The increased difficulty in finding employment and leaving social assistance is likely due, ceterus paribus, to reduced labour demand on the part of firms.
You can check out the references in the original report. You will note that the minimum wage file is tangential to its main focus, which I'll be revisiting in the near future.
The employment effects of the minimum wage might be safely ignored if the gains from doing so - in terms of reduced poverty and inequality - were "large enough". But available evidence makes it clear that these gains are far too small to justify ignoring employment effects. Moreover, the data suggest that marginalised workers are most likely to pay the price of those job losses.
I've said it before, and I'll say it again: as anti-poverty measures go, increasing the minimum wage is pointless at best.