The idea that raising the minimum wage will drive up the cost of labour, force businesses to close and cost people their jobs is largely a myth, according to the work of economist Jim Stanford.
The Unifor economist co-authored a report for the Canadian Centre for Policy Alternatives that looked at more than three decades of data from 10 provinces, using seven measures of employment and unemployment, and concluded the theory just doesn't hold up.
"In all of those studies, in 90 per cent of the time, we found no connection at all between minimum wages and labour market outcomes, and the remaining 10 per cent of the times, we did find a couple of cases where it was negatively associated, and we did find a couple of cases where it positively associated," Stanford said. "The overwhelming finding is there's no connection at all. In other words, it's a wash. Whatever negative impacts on the employment decisions occur because workers are more expensive is offset by the fact you get better retention, higher productivity and stronger consumer spending."
Stanford's 2014 report, Dispelling Minimum Wage Mythology, was coauthored by Jordan Brennan from the Canadian Centre for Policy Alternatives, a left-wing think-tank.
According to Stanford, who holds a PhD in economics from New York's New School of Social Research, the traditional argument treats workers like commodities, and if you make them more expensive, people will buy fewer of them - an analogy he said is mistaken. "You buy a worker in order to produce something, which you then have to sell. Nobody hires people for the sake of it. They hire based on their judgment that they can profitably produce a good or service and sell it in the broader economy," he said.
"The wage that a worker receives is not just the cost of labour, it's also the source of income to buy those products at the end of the day. That's why you can't take a simple minded approach that higher wages means less employment."
Employees who are paid better are more motivated, according to Stanford's research, and businesses benefit from higher retention while saving money on recruitment and training. Meanwhile, those employees have more money in their pockets to buy goods and services.
"If you (raise minimum wage) across the economy, then it can make a meaningful difference, because across the economy, consumer spending is going to be stronger," he said.
