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Update on Jimbo’s Minimum Wage Wager

Summary:
It’s been over a week now since I challenged the authors of 5 business-friendly economic reports to a friendly wager over the future trajectory of employment in provinces that are raising their minimum wage to per hour.  The challenge was issued in my Globe and Mail column of October 3. I was responding to the several business groups and business-funded think tanks that had issued several reports predicting job losses from the higher minimum wage, in the run-up to the coming vote in the Ontario legislature on the policy.  I summarized some of the major flaws of the various studies: including their misreading and misapplication of recent economic research on the employment effects of minimum wages (which typically find very small, or even slightly positive, effects); their misleading

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It’s been over a week now since I challenged the authors of 5 business-friendly economic reports to a friendly wager over the future trajectory of employment in provinces that are raising their minimum wage to $15 per hour.  The challenge was issued in my Globe and Mail column of October 3.

I was responding to the several business groups and business-funded think tanks that had issued several reports predicting job losses from the higher minimum wage, in the run-up to the coming vote in the Ontario legislature on the policy.  I summarized some of the major flaws of the various studies: including their misreading and misapplication of recent economic research on the employment effects of minimum wages (which typically find very small, or even slightly positive, effects); their misleading arguments regarding the connection between minimum wages and poverty; and their spurious concerns about the supposedly undue pace of the increases in Ontario and Alberta (in fact, of course, business lobbyists stridently oppose higher minimum wages on any timetable).

My main concern, however, was not these methodological critiques, but rather that the headlines generated from these reports about “coming job losses” resulting from higher minimum wages were very misleading, and in fact misportrayed the reports’ actual findings.  The reports generally describe an implicit counterfactual simulation relative to some base case forecast (which presumably incorporates normal ongoing employment growth).  At worst, in their scenarios (even if we accept their pessimistic approach), employment would grow more slowly than would otherwise be the case.  That doesn’t really mean that “jobs are destroyed by higher minimum wages.”  But that is how the results were portrayed in media coverage.  The scale of potential job losses in even the more negative of these studies will almost certainly be overwhelmed by normal job creation, and hence employment will continue to grow even after minimum wages are raised.

It’s important to note that this is not because of higher minimum wages (the economic research suggests that the expansionary effects of higher minimum wages through stronger consumer spending roughly balance out potential contractionary effects experienced primarily through slower business investment).  I am not arguing that a higher minimum wage in and of itself creates new jobs; only that fears they will destroy jobs and reduce employment are not valid.  The small effects of minimum wages (in either direction) will be overwhelmed by the other, more important determinants of employment.  Meanwhile, the distributional effects of higher minimum wages (shifting income from capital to labour, and towards low-wage workers in particular) will be very positive.

To highlight this point, I challenged the authors of five different critical studies to a $500 wager (each) that total employment in the relevant province they analyzed would be higher (not lower) one year after the minimum wage is increased.  To propose this wager, I have corresponded personally with the lead authors of the studies published by the Ontario Chamber of Commerce, TD Bank, the C.D. Howe Institute, the Fraser Institute, and the Ontario government’s own independent Office of Financial Accountability.  (That last group is in a different category from the others: it is not a business-friendly think tank but rather a government-funded body meant to provide arms-length analysis of government fiscal policy matters; its mandate apparently allows it to wade into broader economic issues like this one. I remain deeply suspicious of the FAO’s decision to wade into this particular debate, and I think there should be a broader critical discussion of its mandate and governance.)  The C.D. Howe report was focused on Alberta – and hence my proposed wager is based on the change in Alberta’s employment.  All the others focused on Ontario, and the bet was defined accordingly.

In my correspondence I indicated that if I won the bet, I would donate both my winnings and my original ante to the Workers’ Action Centre (the fine organization which has spearheaded the Fight for $15 in Ontario), or in the case of the Alberta study to the Fight for Fifteen network based in Calgary.

To date I have heard back from three of the five authors.  Two of the authors (lead authors of the TD Bank and Ontario FAO reports) replied noting that their own research in fact indicates their expectation that total employment in Ontario will indeed grow after the minimum wage is increased (although more slowly, in their judgment, than it would have otherwise).  They were understandably puzzled why I would ask them to bet against their own forecasts!  The lead author of the Ontario Chamber of Commerce study sent me a pleasant but noncommittal reply, referring me to a posted response which restates their key arguments, expresses concern at “ideological” misrepresentations of their findings, and declines the proposed wager.  The reply (like the original study) makes no mention as to whether the authors expect total employment in Ontario to rise or fall after the minimum wage is increased (that is, whether the job losses they expect from the minimum wage will outweigh the normal expected increase in employment).  I repeated this explicit question to them in subsequent correspondence, with no reply.  I should note that all three of these authors also indicated they did not think betting on an important economic issue was appropriate or ethical.

I have not yet received a reply from the authors of the Fraser Institute and C.D. Howe reports.  I will update this blog post (in the Comments section below) if I have any subsequent correspondence regarding the proposed wager.

For now, this offbeat exercise has confirmed my argument in the original column that none of the minimum wage critics are actually arguing that employment is going to decline in any of the provinces lifting the minimum wage to $15. Highlighting this point – that employment growth has been relatively strong in all three provinces (Ontario, Alberta, and B.C.), and will almost certainly continue even as the minimum wage increases – is an important way of responding to the fear-mongering of the business critics.

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