The Alberta government's promise to dramatically raise the province's minimum wage has pitted the usual suspects against each other, saying the usual things. Business owners insist the higher wage – up to $15 per hour in 2018 – will result in layoffs and lost job creation; the NDP and its union supporters believe it will help spread Alberta's vast wealth more fairly and could even boost employment.
It can't do both, so which is it?
In normal circumstances, minimum-wage increases neither create nor destroy jobs to any significant degree. They are merely facts of economic and political life that can be borne by wage-payers if governments tread carefully.
But, in Alberta's case, the proposed increase is so big and comes so quickly that it could warp the usual outcomes. The current rate is $10.20 per hour ($9.20 for tip-earning employees). The NDP government says it will raise the rate to $15 in barely three years – an unprecedented 47-per-cent increase.
Alberta's last increase, in September, was a reasonable 25 cents. The next increase, presumably this fall, could be $1.20, if one averages out the total increase of $4.80 (from $10.20 to $15) over four calendar years. And then another $1.20 in 2016, and 2017, and 2018.
It's madness to believe that putting such a burden on businesses and non-profits won't have an impact. Economists normally argue that minimum-wage increases don't cause a rise in unemployment, because most minimum-wage earners (52 per cent of them in Alberta) are young people working part-time in service industries and going to school. No one else wants the work, especially in strong economies. Service industries, such as the fast-food business, just keep hiring and pass the expense on to customers.
But what happens when the increases are arbitrarily massive and continuous? Ontario decided not to find out when it backed away from a similar proposal last year. Unions wanted the rate to jump from $10.25 to $14. The province wisely decided on a 75-cent raise, to $11, with further increases tied to inflation.
Some economists say a huge increase in the minimum wage such as Alberta is proposing could prompt kids to drop out of school. Why study when you can make $30,000 a year flipping burgers? As well, economists agree that a higher minimum wage is not the way to reduce poverty. The better solutions are wealth transfers to the poor through tax benefits or a guaranteed minimum income.
But the NDP promised a provincial minimum wage that will be the highest in Canada by far, and so that's what it seems Alberta will get. It could turn out to be ruinous.