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The $15 Minimum Wage as a Poverty-Alleviating Tool: Possibility or Fallacy?

By Mathilde Ngo Mbom

The birth of the Fight for 15

The “Fight for 15” movement began when 200 fast-food workers in New York City started striking on November 29, 2012 to demand better employment conditions, including a huge bump in hourly minimum wage from $7.25 to $15.

In 2017, the social justice phenomenon has gained some ground around the world including Canada, where 3 provinces have already considered the partial or full implementation of the $15 minimum wage. The Canadian pioneer of this labor policy was Alberta, with Ontario and British Columbia following suit. These provinces argue that the program will reduce the number of people living in poverty, the majority of whom earn the minimum wage rate.  However, the $15 minimum wage hike is an initiative with a lot of opposition that reveals a deeper area of contention in economics: a combat of economic ideologies aiming to reduce poverty.

What does basic economics theory say?

On one side, the economic critics of the campaign claim that the policy will fail to meet its purpose since it defies the law of demand, given that a higher salary wage will reduce the demand for employees. As a matter of fact, the Fraser Institute reported disemployment as one major consequence of the minimum wage hike. The loss of employment would mostly affect the low-wage workers that the policy intended to help, notably young people and immigrants. The report also noted increased prices for consumers, thereby decreasing the spending power of minimum wage earners in spite of increased earnings.

Another study that appeared in the Journal of Labor Research in 2012 by Michele Campolieti, Morley Gunderson and Byron Lee revealed that a minimum wage hike would not have significant statistical effect on poverty because “about 30 percent of the net earnings gains from minimum wage increases go to the poor while about 70 percent ‘spill over’ into the hands of the non-poor.”  In line with these findings, a working paper published by the National Bureau of Economic Research in June found that the average low-wage worker in Seattle lost $125 a month following the gradual increase of hourly minimum wage to $15.

What does progressive economics theory say?

On the other hand, the economic supporters of the wage hike claim that its benefits will outweigh the costs. While not denying the possibility of job losses, economist Armine Yalnizyan recently stated that the hike will improve productivity and consequently the economy from the bottom up. With household consumption accounting for 57 percent of Canadian GDP, she claims that minimum wage earners will have more disposable income, a condition that will result in “more demand for what businesses have to sell.” She also noted that the potential job loss among teenagers may be unrelated to only labor wage hikes, citing a study conducted by the National Employment Law Project which found no correlation between minimum wage hikes and job losses.

Are there other alternatives to fight against poverty?

Since economists cannot all reach a consensus that the "liveable" hourly wage can permanently reduce poverty, other economic tools can be used as anti-poverty devices. Among them is the increase in the Working Income Tax Benefit in Canada, or the Earned Income Tax Credit in the US, a program in which low-income earners are motivated to be members of the workforce by receiving a subsidy from higher income taxpayers. A 2015 University of New Hampshire survey of 166 US-based economists has revealed that 71% of the economists believed that the subsidy could help reduce poverty, contrarily to the $15 minimum wage that only gathered a support of 5%. Other suggestions include a decrease in taxes, an increase in child tax credits, accessibility to more training programs and implementation of a guaranteed basic income program, an initiative that is currently being tested by the Ontario government in three cities.

What’s next?

Whether the contradiction in opinion regarding the impact of a rise in minimum wage on poverty derives from economic theory, humanitarian goals, or political motivation, the Fight for 15 campaign is in full swing in Canada and won’t be without noticeable consequence. Interestingly, one such consequence may be with regards to automation in the workplace, which may be expanding faster than expected. For example, in light of the minimum wage hike proposal by the Ontario government, the grocery chain Metro is considering replacing human cashiers with machines to offset the $50M increase in labor costs. Will other chains do the same?

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