Does the Minimum Wage Reduce Poverty?

By Richard Pesik, CASJ Economic Justice Action Group and Port Alberni teacher

In 2015, the Fraser Institute, a Canadian think tank identified by many as having a right-wing agenda, published a study in which the authors disagreed with the assertion that raising the minimum wage is a tool that can be used to eliminate poverty and help those experiencing economic hardship. The arguments in the study were based on the belief that most workers earning the minimum wage are young and live with their parent(s). Using data from Statistics Canada, the study pointed out that of the almost 65% of minimum-wage workers in Canada who are between the ages of 15 and 24, 85% live with their parents. The study did not take into consideration the main reasons why young people stay at home, which is their inability to live on their own due to a low minimum wage and the high cost of accommodation.

The article also argued that, based on recent studies, increasing the minimum wage would result in a decrease in employment. Based on evidence in Canada, the study concluded that minimum wage increases lead to an increase in poverty levels.

Similarly, the Cato Institute, which describes itself as “a think tank dedicated to the principles of individual liberty, limited government, free markets, and peace,” is not in favour of raising the minimum wage. A report from this institute predicts that raising the minimum wage would produce job loss, negatively impact low-skilled workers, have a negligible influence on poverty levels, and could lead to an increased cost of living. Both of these think tanks embrace a neoliberal view that measures human progress in terms of economic growth achieved though deregulation, free-markets, and privatization of public services. Fortunately, the assertions of these think tanks are contradicted by other studies that suggest that increases to the minimum wage would indeed reduce poverty. In a 2014 Washington Post article, economist Mike Konczal pointed out that many economists agree that a minimum wage increase reduces poverty. He suggested the positive benefits of increasing the minimum wage were in “reducing extreme poverty and reducing inequality.”

In addition, the idea that the increase of the minimum wage will result in job lost is incorrect. When the Alberta NDP government proposed an increase to the minimum wage, the predictions were that between 53,000 and 195,000 jobs would be lost in the province. These predictions did not materialize. In his 2018 article, Parkland Institute Research Manager Ian Hussey noted that jobs were actually added to the economy. These findings coincide with studies in the United States between 1972 and 2007 that concluded that the effect of minimum wage increases on employment were negligible.

Contrary to the neoliberal standpoint that opposes any minimum wage increase as a tool to reduce poverty, an increase in the minimum wage has a positive impact not only on the growth of the economy by producing a higher purchasing power, but also on the psyche of those living in poverty by lifting them above the poverty line.

The following articles were used to research this article and are recommended for those wishing to learn more: Fraser Institute, Minimum Wages Don’t Help the Poor Mike Konczal, Economists Agree: Raising the minimum wage reduces poverty Ian Hussey, Minimum Wage Hike a Success Despite Gloomy Predictions Ian Hussey and Jack Mintz, Ian Hussey Anticipates Benefits Cato Institute: Four Reasons Not to Raise the Minimum Wage