Want to put students out of work? Raise the minimum wage

austerity

Once again this spring, thousands of Quebec post-secondary students have gone on strike. They are not protesting against tuition fees, which are the lowest in Canada, as they did in massive numbers in 2012, but against the provincial government’s alleged “austerity agenda.” As cheerfully reported by Fightback, “the Marxist Voice of Labour and Youth”, more than 5,000 students and youth recently took to the streets in Montreal, “chanting anti-austerity, anti-government, and anti-capitalist slogans.” The march was organized by the local chapter of the Canada-wide (and unabashedly Communist) Revolutionary Student Movement.

Although such actions may be dismissed as youthful left-wing idealism, the fact is that ideas pushed by radical students on university campuses often have an adverse impact on all students. In particular, students’ unions often spend large amounts of time and money – expropriated from the student body via mandatory student union fees – on lobbying for economic policies that will harm students. A good example is their ongoing campaign for higher minimum wages.

Leading the charge is the student union-funded Canadian Federation of Students, the largest student organization in Canada. In 2013, the CFS lobbied for a $14 minimum wage in Ontario, which would have been a 37 percent increase at the time. Currently, the CFS is fighting for a $15 minimum wage in British Columbia and in Nova Scotia, which represents a 46 percent increase in BC and a 44 percent increase in Nova Scotia.

Students’ unions and activists often say higher minimum wages are needed to reduce poverty. However, there is wide agreement among economists that the relationship between changes in the minimum wage and changes in the poverty rate either does not exist or is very weak. In Canada, only 1 in 8 minimum wage earners live in poor households. For governments concerned about poverty reduction, there are surely more effective policy options than a minimum wage.

While minimum wages are ineffective in reducing poverty, they do play a significant role in reducing employment. Jobs are lost when government sets a minimum wage that exceeds a worker’s capacity to add value to a company. Young workers, who tend to be unskilled and inexperienced, and who constitute the majority of minimum wage earners, suffer the heaviest job losses. The economic evidence indicates that increasing the minimum wage by 10 percent in each Canadian province would result in a 3-6 percent reduction in the employment rate for young workers. Increasing it by upwards of 40 percent, as recommended by the CFS, would have an exponentially greater negative impact on youth employment.

It logically follows that one way to effectively reduce the high levels of youth unemployment in Canada would be to lower the minimum wage. What young people starting out in the working world need – even more than money – is opportunity and experience. A low minimum wage would create more of both. The same argument applies to any unskilled worker – not just youth – whose primary concern is getting a foot in the door, and then working his or her way up.

Evidence that young Canadians are willing to trade low wages for experience (and by extension, higher wages in the future) can be seen in the growing popularity of low-paid and unpaid internships. Current estimates suggest there are as many as 300,000 Canadians working in unpaid internships. Assuming the vast majority are students, that’s about 15 percent of the two million people enrolled in post-secondary institutions in Canada today. Volunteering is what students do – contrary to what some of their elders might think. More than half of Canadians aged 15-24 participate in volunteer activities each year, the highest rate of any age group.

It must also be pointed out that working for low wages (or no wages) is not a permanent situation – those who improve their skills and work hard are eventually given the opportunity to move up the income ladder. According to a recent Fraser Institute study, 87 percent of Canadians in the lowest income quintile in 1990 had moved out of the lowest quintile by 2009. Data from other sources confirms that intergenerational economic mobility is higher in Canada than in either the United States or the United Kingdom.

Besides increased employment prospects, lower minimum wages deliver another important benefit to students: lower consumer prices. A review of nearly 30 American studies cited in a 2011 report by the Canadian Federation of Independent Business found that a 10 percent increase in the minimum wage results in up to a 4 percent increase in prices. The corollary is that a decrease in the minimum wage would result in a decrease in prices – and benefit students who are always looking for ways to economize.

Since higher minimum wages increase unemployment and consumer prices without reducing poverty, and given the fact that so many students are already working for free, a case can be made for lowering, or even abolishing, minimum wages.

Of course, there would be other impacts. Lowering or scrapping the minimum wage could put downward pressure on wages, thereby swelling the ranks of the so-called “working poor.” But theoretically, at least, this cohort would also benefit from increased employment opportunities. And the Canadian economy, including its hard-pressed manufacturing export sector, would benefit from more competitive labour costs. Even taxpayers would win, since many minimum wage positions, particularly for students, are either government jobs or taxpayer-funded via government summer job grants.

Therefore, while a high minimum wage may benefit some workers, the economic inefficiencies and unemployment associated with it are too high a price to pay. Far from lobbying for increases in the minimum wage, students and other Canadians should actually be campaigning to abolish it.

~

Matthew Lau is a finance and economics student at the University of Toronto.

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