 The Impacts of Minimum Wage Increases on the Canadian EconomyDany Brouillette, Calista Cheung, Daniel Gao and Olivier Gervais Staff Analytical Notes from Bank of Canada Abstract: This note reviews the channels through which scheduled minimum wage increases over the coming years may affect Canadian economic activity and inflation and assesses their macroeconomic impacts. From reduced-form estimates of direct minimum wage pass-through, we find that consumer price index (CPI) inflation could be boosted by about 0.1 percentage point (pp) on average in 2018. A structural general equilibrium simulation suggests that minimum wage increases would reduce the level of gross domestic product by roughly 0.1 per cent by early 2019 and boost CPI inflation by about 0.1 pp. While the net impact on labour income would be positive, employment would fall by 60,000—a number that lies in the lower part of a range obtained from an accounting exercise (30,000 to 140,000). Consumption would decline because higher inflation would elicit a slight interest rate increase, which would more than offset the higher labour income. Potential output should remain unchanged in the short run. Longer-term effects are possible through automation, productivity gains or participation in the labour force, but the signs of these longer-term effects are ambiguous. Keywords: Labour markets; Recent economic and financial developments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsan:17-26 Access Statistics for this paper More papers in Staff Analytical Notes from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC. |
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