B.C. Business Matters:
Jock Finlayson >>
Three Observations on BC's Rising Minimum Wage
The BC government has decided to follow the advice of the Fair Wages Commission and move to a $15/hr statutory minimum wage over the next four years. Currently pegged at $11.35/hr, the province’s general minimum wage will climb in steps to reach $15.20/hr by June 2021. The first increase, to $12.60/hr, comes into effect in June 2018. Subsequent increases are slated for June 2019 ($13.85), June 2020 ($14.60) and June 2021 ($15.20).
How is a higher minimum wage likely to play out in the context of BC’s economy and labour market?
|Source: BC Fair Wages Commission First Report, January 2018, p. 8.|
First, while some employers who rely on relatively low-paid staff will see their profit margins squeezed and respond by cutting jobs/hours, there is no reason to expect a big decline in the overall demand for labour. Experience from other jurisdictions, as well as BC’s own history of prior minimum wage hikes, suggests that a higher minimum wage will not have a dramatic impact on employment levels. That said, a rising minimum wage will certainly make it harder for some young and inexperienced workers (including new immigrants with limited educational credentials and/or English language skills) to gain a foothold in the job market. If jobs do disappear, this is where the consequences will be most keenly felt.
Minimum Wage Earners
by Gender and Age in BC: 2016
Minimum Wage Earners (%)
|Source: BC Fair Wages Commission First Report, January 2018, p. 45.|
Second, it must be recognized that the wage/income boost for workers will not be limited to those now paid below the proposed $15.20/hr minimum. Only 4.8% of workers in BC (93,800 individuals) currently receive the minimum wage. But several hundred thousand – amounting to 20.4% of all employees -- are paid less than $15.20/hr. All workers in this much larger group presumably will be better off as the province’s minimum wage moves higher – provided they manage to retain their jobs and hours. A rising minimum wage will augment the incomes of many lower-paid employees, perhaps leading to a higher level of overall consumer spending.
Finally, looking ahead it’s important to keep an eye on the evolving relationship between the statutory minimum wage and the average industrial wage in BC. In recent decades, the ratio of the minimum to the average wage has generally remained below 50%, both in BC and other Canadian provinces. Research from the Organization for Economic Cooperation and Development (OECD) finds that as the ratio climbs above 50%, the likelihood of net “job destruction” increases. BC will be moving, in fairly short order, to a significantly higher ratio, as the minimum is pushed up to $15/20 hr. In the Business Council’s submission to the Fair Wages Commission, we recommended that the government closely monitor the effects of an escalating minimum wage on the extent and composition of labour demand. As the ratio between the minimum wage and the average wage approaches and then exceeds 50%, policy-makers should be alert to the risk of substantial job losses, notably among younger and less-skilled workers.