Alberta’s minimum wage cut for teens should just be the start

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Matthew LauDuring the recent Alberta election campaign, with the province’s unemployment rate remaining stubbornly high, the now-governing United Conservative Party proposed reducing the minimum wage from $15 to $13 for workers below the age of 18.

And now the government has introduced legislation to make that change, along with changes to overtime pay requirements.

The benefits of this less restrictive wage floor for younger workers are clear. As a 2014 study by University of Toronto labour economist Morley Gunderson concluded, the “Canadian evidence has shown that a 10 per cent increase in the minimum wage would lead to a three to six per cent reduction in the employment of teens.”

The corollary is that reducing the wage floor for those under the age of 18 would increase the job opportunities available to them, giving them the work experience they need to climb the economic ladder.

Indeed, many jurisdictions around the world have lower minimum wages for young workers, making it easier for them to find their first jobs.

The unhappy flip side, however, is that as workers get older they lose the benefit of the lower wage floor, which reduces their employment opportunities.

In the Netherlands, the minimum wage is phased in when a worker turns age 15 and is increased every year on the worker’s birthday until age 23, when they become subject to the full adult minimum wage. Younger workers do indeed benefit from the reduced minimum wage, which makes it easier to find jobs. But as their birthdays approach and a higher wage floor is about to kick in, there’s increased risk of job loss.

A 2015 study circulated by the Germany-based Institute of Labor Economics analyzed the effect of the Dutch minimum wage. It concluded there was “a significant increase in the probability of job separation” for young workers in the months closest to their birthday, when they would be subject to a higher minimum wage.

This was captured in the title of the study: “Happy Birthday, You’re Fired! The Effects of Age-Dependent Minimum Wage on Youth Employment Flow in the Netherlands.”

Similarly, in Denmark there’s a very dramatic change in the employment opportunities for young workers when they become subject to a higher minimum wage. (While there’s no statutory minimum wage in Denmark, there’s effectively a minimum wage as a result of union and other agreements.)

Why economists can’t endorse minimum wage hikes

As a recent study by economists Claus Thustrup Kreiner, Daniel Reck and Peer Ebbesen Skov explained, when a worker in Denmark turns 18, they’re subject to a 40 per cent increase in the minimum wage. At that point, “Employment falls by 33 per cent and total input of hours decreases by 45 per cent.”

Similarly to the Dutch minimum wage, the Danish study found that the employment rate of workers, by age, rises steadily until a few months before age 18. At age 18, when the workers become subject to a higher minimum wage, the employment rate is cut by one-third.

In Alberta, the decline in employment when workers reach age 18 would likely be less severe, since the minimum wage jump from $13 to $15 represents an increase of 15 per cent, compared to the 40 per cent increase in Denmark.

Yet the experiences of Denmark and other jurisdictions show that the positive employment effects of a lower minimum wage should be extended to all workers, not just those under a certain age.

The Alberta government is moving in the right direction by making it easier for the youngest workers to find their first job.

However, being penalized with a wage hike that increases the risk of joblessness is a crummy way for workers to ring in their 18th birthdays.

To reduce unemployment across the board, the minimum wage should be cut for workers of all ages.

Matthew Lau is a research associate with the Frontier Centre for Public Policy.

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The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

By Matthew Lau

Matthew Lau is a writer in Toronto. His interests are in economic principles and fiscal issues, and he has written for the Financial Post, the Fraser Institute, and the Atlantic Institute for Market Studies. Matthew holds a Bachelor of Commerce, with a specialization in finance and economics, from the University of Toronto.

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