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Thinking about Minimum Wage Increases in Alberta: Theoretically, Empirically, and Regionally

Joseph Marchand ()

C.D. Howe Institute Commentary, 2017, issue 491, 1-20

Abstract: In 2015, Alberta became the first province in Canada to commit to a $15 minimum wage, and will be the first state or province in North America to reach it, rising from an initial rate of $10.20 in 2014 to $15.00 by 2018 through four annual increases. This Commentary offers ways to more broadly think about the effects of these minimum wage increases, with an emphasis on potential changes to employment in the particular case of Alberta. Alberta shares its recent $15 minimum wage goal with the province of Ontario, as well as with the states of California and New York, which also began at similar minimum wage levels. However, Alberta’s time horizon of 2018 is much shorter than that of 2022 for California and New York. Its policy also does not contain the unique policy parameters of those states, and Alberta did not implement the tax credit that it was initially paired with. According to theory, an employment loss is expected from imposing a higher minimum wage in a competitive labor market, although no change or even an employment gain could happen if employers are few. Although, empirically, there is evidence to support both models, it favors a slightly negative effect. That said, the existing Canadian evidence highlights a larger negative effect on employment compared to that of the US. Proper measurement of the effects from Alberta’s policy can take place only after the policy has been fully implemented. In the meantime, several rough calculations for Alberta indicate a potential loss of roughly 25,000 jobs, assuming competitive markets in the industries employing workers at the minimum wage. A similar number of affected workers have already lost their jobs since the policy was first implemented. The boom and bust nature of Alberta’s energy resource economy could potentially mitigate or exacerbate the employment effects of such a large minimum wage increase. While the influence of energy prices on labor demand is largest in energy extraction, these effects have been shown to spill over into other local industries as well. The largest spillovers happen to take place in the industry employing the most low-wage workers. Given the boom and bust nature of the regional economy, Alberta should have timed its minimum wage increases with upward movements in energy prices, and/or followed through with its initial job creation tax credit or some other instrument allowing for greater economic flexibility. Instead, by ignoring economic conditions, the province mistakenly prioritized higher wages during a time when employment was a problem.

Keywords: Education; Skills and Labour Market (search for similar items in EconPapers)
JEL-codes: J2 J3 Q3 (search for similar items in EconPapers)
Date: 2017
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