Minimum wages (2)

Cahier spécial : Minimum wages (2)

Characteristic 2 Minimum wages

Minimum-wage laws establish the lowest level of hourly pay that employers must legally pay workers.

·       Minimum wages have been shown to reduce employment opportunities for young and unskilled workers by restricting the ability of employers and employees to negotiate mutually beneficial contracts.

·       In particular, minimum-wage legislation hinders low-skilled workers and new workforce entrants from negotiating for employment they might otherwise accept.

·       A large body of empirical research documents the adverse effects of high and increasing minimum wages, consistently show that increases in the minimum wage have negative employment effects, particularly for younger workers.

·       In other words, an increase in income from higher minimum wages may be offset by reductions in other types of incomes such as benefits and training. Decreasing on-the-job training is a serious problem given that research shows that this type of skills development is an important driver for young and low-skilled workers making the transition to higher wages in the future.

Age of minimum-wage workers

·       A fact about minimum wages that is often overlooked is the age of minimum-wage workers. Data from Statistics Canada (2011e) reveal that in 2010, 58.9% of all minimum-wage workers in Canada were between the age of 15 and 24, of which 85.7% lived at home with family.

·       It is not surprising, then, that high minimum wages are associated with higher school-dropout rates, as the increase in the minimum wage encourages teenage workers to leave school in search of employment.

Temporary experience

Another important fact often overlooked is that, for the vast majority of workers, earning the minimum wage is a temporary experience. Most minimum-wage earners are new entrants to the labour force who are trying to gain skills in order to earn higher wages or are working while attending school.

Research shows there are very few workers who remain in minimum wage jobs year over year.

For example, those earning low incomes in the period from 1993 to 1996, 64% were no longer earning low wages a year after they began work and, after two years, up to 78% were no longer doing so.

In the end, minimum wages do not appear to reduce poverty

A study published earlier this year examines increases in the minimum wage in nine Canadian provinces over the two decades from 1981 to 2004. That a 10% increase in the minimum wage increases poverty rates by 4.0% to 6.0%.

As the minimum wage grows relative to average income, the range of employment contracts that can be negotiated is reduced and economic performance is eroded.

Average minimum wage

Tables des matières:

1)      Measuring Labour Markets in Canada and the United States 2011 Edition

2)      Public-sector employment (1)

3)      Minimum wages (2)

4)      Unionization (3)

5)      Labour relations laws and conclusion (4)

Source : Measuring Labour Markets in Canada and the United States 2011 Edition, by Amela Karabegović, Alex Gainer, and Niels Veldhui, Fraser Institute, September 2011