Economics is one part science, one part art and one part blindly throwing darts at a board. The level of uncertainty in what comes next is due to the fact that humans are not, in fact, totally rational beings. There’s always a degree of murkiness and guessing.
And thus it is in Alberta where we are guessing what impact the rising minimum wage will have on the labour market. The governing NDP campaigned last spring on a platform of increasing the minimum wage from $10.20 an hour to $15 within four years. The first one dollar increase kicked in last month, and the government intends to continue with annual increases until it reaches $15.
Right-wing political opponents and some economists predict this will be a job killer. Left-wing pundits and social activists, on the other hand, predict it will actually create jobs because it will stimulate consumer spending. What both groups have in common is the fact that they’re only guessing what will happen.
Luckily, there’s a bit of survey work out there that sheds some light on how employers are likely to react.
The Human Resources Institute of Alberta (HRIA) is the governing body for the training, certification and promotion of Alberta’s human resources professionals. A recent piece of research commissioned by the HRIA asked employers in the province how they will respond to the increase in the minimum wage. Imbedded in their answers is both good news and bad news.
First the good news. The most common response by employers is to “adjust the wage and pay scale across the organization.” Nearly two-thirds of companies in the survey said this is likely or very likely. That’s positive – it shows that companies are both willing and able to increase compensation at the bottom end of the scale. (But the “across the organization” phrase also implies that there may be some wiggle room to scale back pay for those medium– or high-income earners.)
More good news. Nearly as many companies (62 per cent) said they would “raise prices for products and services.” While that’s lousy news for consumers, it does reflect that companies believe their customers are able to bear higher prices. If they didn’t believe it, they wouldn’t say they’re going to do it.
It’s also encouraging that only a minority of respondents (35 per cent) expect to “lay off current employees.” That’s especially positive in Alberta at the moment. With the energy market downturn, unemployment has already jumped from 4.5 to 6.5 per cent – and it’s likely to rise further still. Additional unemployment due to a higher minimum wage would only add to the misery.
But the report isn’t all roses and sunshine. In fact, some of the responses are quite ominous for the future of low-income earners. Nearly half of employers said they will “reduce training.” Presumably, less money to spend on training would help offset the higher labour costs. But is scrimping on employee training ever a good idea? Do you want the lowest-income earners – who in general already possess the least education – to fall further behind? There are serious health and safety issues as well.
There’s also bad news for future workers. While only a third of the companies said they will lay off existing workers, a greater percentage (44 per cent) said they will “reduce or limit the number of entry-level positions.” That means they’ll be less likely in the future to add new employees earning minimum wage. This bodes ill for teenagers and other Canadians who are trying to gain their first work experiences. It will exacerbate the age-old Catch-22 of not getting the job because you don’t have experience, but not gaining experience because you didn’t get the job.
Raising Alberta’s minimum wage by nearly 50 per cent is a bold experiment – and ultimately it’s a leap into the great unknown. The results could be a mixed bag. It probably won’t be the doomsday scenario of massive unemployment predicted by some. But it could erode work training and new opportunities for future workers.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.