Minimum wage increases bring unintended consequences

The following is AEG’s monthly column by AEG President Josh Bilyk appearing in the July edition of Business in Edmonton Magazine. If you have tips or suggestions for future columns, please feel free to write or call. 

The governing NDP’s campaign ambitious commitment to increase Alberta’s minimum wage to $15 by 2018 is causing a lot of worry for businesses and non-profit organizations across Alberta, and for good reason.

In the first step of the plan, the province increased the rate by $1.00 from $10.20 to $11.20, with the hourly liquor server rate increasing by $1.50 to $10.70. This change vaulted Alberta from having the second lowest minimum wage in Canada to having third highest.

If the government sticks to their plan, this is just a taste what’s to come.

We all want to improve the livelihoods of low-income earners, but jacking up the minimum wage might not be the best approach. Every day I talk to business leaders, many of whom are struggling to get by in this downturn. Often the issue of minimum wage comes and I have asked them about how they dealt with the most recent increase and plan to deal with the planned increases over the next two years.

Many business have responded by reducing their number of workers they employ. Others have cancelled plans to expand or limited promotions of existing employees. Some have cut back on training and employee benefits or reduced the number of higher-paid staff members to offset increased costs. Nearly everyone I speak to has absorbed higher costs through reduced profits while increasing prices for their customers.

These are all perfectly rational and natural responses to a dramatic increase in the cost of doing business, and we expect this to continue in the years ahead.

In the final analysis, the only thing worse than earning minimum wage is being unemployed. But the inevitable consequence of a $15 dollar minimum will be fewer job opportunities for entry-level and low-skill workers. As tough as it can be to get by on minimum wage, we need to remember that in many cases the minimum wage job is often a person’s first toe-hold in the economy. According to the government, nearly 60 per cent of minimum wage-earners work part time and nearly half are under the age of 25.

We also know that Alberta’s 59,000 minimum wage earners often don’t make that wage for long. Once they gain that invaluable work experience, they start moving up the salary ladder.

But without that first opportunity, there’s no ladder to climb.

There are other ways to improve the lives of low-income Albertans without killing jobs with rapid minimum wage increases. For starters – let’s look at the tax system. A minimum wage earner in Alberta pays more than $1,700 in income tax – the vast majority of that going to the federal government. The federal government’s Basic Personal Amount is a paltry $11,474, while Alberta’s is $18,214. Increasing the basic exemption would remove thousands from the tax rolls all together.

If the government continues to drive toward $15, minimum wage earners’ tax bills will more than double. In addition, a $15 dollar wage could mean the loss of the Canadian Child Tax Benefit, Working Income Tax Benefit and GST credits. You have to wonder whether many workers will benefit at all from a $15 minimum wage.

Let’s use the minimum wage debate for broader discussion on how we support low income Albertans that includes a review of low income supports, tax policy and the wide range of other government programs in this space. And, don’t forget, the federal government should be at the table as well.

Alberta Enterprise Group is a member-based, non-profit business advocacy organization. AEG members employ more than 150,000 Canadians in all sectors of the economy.