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Canadian Studies

The Canadian studies are reviewed here on a study-by-study basis given the greater relevance of these studies to minimum wage issues in Canada[18]. As well, the Canadian data are generally regarded as better than US data for estimating the impacts of minimum wages (Neumark 2001, p. 128; Hamermesh 2002, p. 716, 717). This is so because minimum wages in Canada are largely under provincial jurisdiction and there is considerable cross-sectional and time series variation in minimum wages so as to facilitate identifying their effects. Having both cross-section and time-series variation is particularly useful since the cross-section alone suffers from the possible biases from unobserved geographic effects that are correlated with the minimum wage and the outcome of interest, and the time series variation alone suffers from the possible bias from similar unobserved time effects (Baker 2005, p. 11). This richer Canadian data is in contrast to the U.S. data where minimum wages are under the federal jurisdiction, with changes seldom occurring. In the US, variation in minimum wages tends to come from differences in state 'top-ups', the extent of coverage or the slow erosion of the real value of the minimum wage as its infrequent changes do not keep up with changes in the average wage of the state – the latter forming the denominator of the minimum wage index.

Fortin (1979)

Fortin (1979) reports on a larger study he had done for the Quebec government on the impact of minimum wages in that province. A 10% increase in the minimum wage was estimated to have the following effects:

An increase in the wage bill averaging 0.65% based on a direct effect of 0.4% and indirect effect of another 0.2 to 0.3 % through wage emulation[19]
This in turn was expected to increase inflation by 0.4% ranging from 0.3 to 0.5%
An increase in the overall unemployment rate of 0.8 percentage points (ranging from 0.6 to 1.0) based on increases of 3.0 percentage points for young men aged 15-24 (ranging from 2.5 to 3.5 percentage points) and an increase of 2.3 percentage points for young women age 15-24 (ranging from 1.5 to 3.0 percentage points) and 0.5 percentage points for adult women (ranging from 0.4 to 0.7 percentage points) and zero effect for adult men
Because of these large adverse employment effects, a decrease in the earnings of young men of 13%, and an increase of 2% for young women (ranging from a decrease of 2% to an increase of 4%) and an increase of 5% for adult women (ranging from 4 to 6%) and zero effect for adult men
Any adverse effect on earnings however is invariably offset by unemployment insurance leading him to conclude (p.637) that "the reason why a high relative minimum wage helps many workers is because the Unemployment Insurance Commission takes charge of a larger fraction of their total incomes."
Over 80% of minimum-wage workers are young persons (mostly living with their parents), unattached individuals or the second wage earner in childless families, leading him to conclude (p. 673) that the minimum wage is an "indiscriminate measure which often does not help the average worker to earn a higher income and whose incidence falls mainly on workers with family incomes well beyond the poverty levels."

Cousineau 1979

Cousineau (1979) employs time series regression of the female and teen unemployment rates in Quebec on a measure of the minimum wage relative to the average industrial wage and various control variables. The analysis is based on bi-annual and monthly data for the period 1968-77. He finds that "minimum wage changes have contributed to the growth of unemployment rates of females and teenagers in the 1970s … The impact is substantial." (p. 417). Specifically he finds that the 0.10 increase in the minimum wage (from 0.46 to 0.56) relative to the average hourly wage in manufacturing that went on over that period of 1968-77 led to a 2.9 percentage point increase in the teenage unemployment rate and a 1.7 point increase in the female unemployment rate.

Maki 1979

Maki (1979) employs pooled time series (1970-77) cross-section (10 provinces) analysis to regress the unemployment rate on a measure of the minimum wage relative to the average wage and other control variables. He finds and elasticity of the unemployment rate with respect to the relative minimum wage is 0.56. He illustrates the magnitude of this effect measured at the average relative minimum wage of 46.5 percent (p. 425): "If some province with a minimum wage of $3.00 per hour and average weekly wage of $250 and an unemployment rate of 8 percent were to increase its minimum wage to $3.50, ceteris paribus, its unemployment rate would increase to 8.7 per cent." He interprets these effects as "not very large … [although] non-negligible." However, it should be emphasised that these are effects on the overall unemployment rate across all age groups and not just on those groups like teenagers and youths who would be most affected by minimum wage increases. The impact on the unemployment rate of these groups would be much larger. Furthermore, an increase in the unemployment rate from 8 to 8.7% is a 9 percent increase in the overall unemployment rate and that is not inconsequential.

Swidinsky 1980

Based largely on the methodology developed in Mincer (1976) and Ragan (1977), Swidinsky (1980)[20] uses pooled cross-section (5 regions) time series (1956-75) data to regress measures of employment, labour force participation and unemployment for teenagers on various independent variables including the adult unemployment rate, a non-linear time trend and a measure of the minimum wage. He finds that minimum wages significantly reduce both employment and labour force participation for males and females. He also finds minimum wages to increase unemployment, although the effect is significant only for females. The adverse effect on unemployment is smaller than the adverse effect on employment since many who are not employed drop out of the labour force because they cannot obtain jobs at the higher minimum wage.

The minimum wage employment elasticity is –0.17 (-0.10 for males and –0.27 for females) which is in the middle of the earlier "consensus" range of –0.10 to -0.30 based on US evidence as discussed previously. The unemployment rate elasticities were considerably smaller because of the labour force withdrawal.

Gruebel and Maki (1981)

Maki and Greubel (1981) estimate separate employment, labour force participation and unemployment equations based on cross-section (10 provinces) time-series (1950-75) data. They find that minimum wages have a negative and statistically significant effect on reducing employment for males and females combined. Minimum wages have a similar negative effect on labour force participation, however, so that the unemployment rate is essentially not affected by minimum wages. That is, according to this analysis, the reduction in jobs is accompanied by an approximately equal reduction in labour force participation so that overall unemployment does not change substantially.

The effects differ, however, for males and females. For females, the impacts on employment and labour force participation (and hence unemployment) are quantitatively small and statistically insignificant – essentially zero. For males, the adverse employment effect is large and statistically significant as is the equally large effect on reducing labour force participation so that the overall effect on unemployment is essentially zero.

Swidinsky and Wilton 1982

Swidinsky and Wilton (1982) estimate the impact of minimum wage changes on aggregate wage changes. Essentially they estimate a Phillip's curve or aggregate wage equation augmented to include measures of legislated minimum wage increases. Their data is based on 2,338 major private-sector collective agreements (200 or more employees) over the period 1966 to 1975, a period that had over 100 legislated minimum wage increases across the 10 provinces. Even though minimum wages would not likely affect wages in collective agreements directly, since union wages are generally well beyond any minimum wages, they may have indirect spillover effects if unions raise wages in order to restore old relativities and if there is an increased demand for high priced union labour to substitute for minimum wage labour.

Their empirical results indicate that minimum wage increases have a positive and usually statistically significant spillover effect on wages in collective agreements. Calculations based on their results indicate that about 10 percent of the minimum wage increase is reflected in subsequent wage increases in collective agreements, with that spillover being 14 percent in the low-wage union sector.

Schaafsma and Walsh (1983)

Schaafsma and Walsh similarly use pooled cross-section (9 provinces) and time series (1975-79) data with a somewhat different specification as in Swidinsky. They also include youths 20-24 and adults 25 and over as well as teenagers (only the later was used in Swidinsky (1980) and in Mincer (1976) and Ragan (1977).

Schaafsma and Walsh also find minimum wages to have a negative effect on employment for all age-sex groups, being significant for five of them. A generally similar pattern was found for labour force participation as people withdrew from the labour force because of the fewer jobs. The withdrawal from the labour force, however, did not offset the employment reduction so unemployment increased. The impacts were generally larger than those found in Swidinsky (1980) and in Mincer (1976) and Ragan (1977).

Specifically, the minimum wage elasticities of employment for males (with the different age groups listed in parenthesis) were:

Age	Males	Females
15-19	-0.61	-0.60
20-24	-0.29	-0.18
25+	-0.15	-0.06

Of particular note, these elasticities for teenagers are about twice as high as the high end of the earlier consensus range of -0.10 to -0.30 based on US data and also for that found in Swidinsky based on earlier Canadian data. As well, the adverse effects decline with each successive higher age group, highlighting how the adverse effects are concentrated amongst teenagers and to a lesser extent amongst young adults. The adverse employment effects, however, are fairly substantial for young adults and even for adults 25 and over, suggesting that they do not benefit by a minimum wage increase (as they could if they were substituted for teens who are priced out of the market).

The unemployment rate elasticities (calculated from the employment and labour force participation elasticities) are around 1 for the different age and sex groups. This implies that a 10% increase in the minimum wage would increase the unemployment rate by about 10% (this is 10% not 10 percentage points). Based on an unemployment rate of around 0.10 at that time, this would increase the unemployment rate by around 1 percentage point.

McKee and West 1984

McKee and West (1984) estimate the impact of minimum wages on the ratio of part-time to full-time employment. They highlight that the effect is theoretically ambiguous. It could reduce the ratio if part-time workers are more likely to have low-wages and hence more likely to be affected by minimum wages and experience an adverse employment effect. In contrast, if part-time workers are less likely to be covered by minimum wages then firms may substitute into using more uncovered part-time workers. As well, any workers displaced by minimum wages in the covered sector may shift to the uncovered sector and work part-time.

Based on monthly data for eight provinces over the period 1975-81 they find that minimum wages generally reduced the ratio of part-time to full-time employment for both males and females. The effect was negative and statistically significant in 12 of the 16 cases (8 provinces separate for males and females) and negative but insignificant in 2 others. In the 2 cases where it was positive the effect was significant in one – for females in Alberta. In essence, their results suggest that minimum wages have a disproportionately adverse effect on the employment of part-time workers, and that this more than offset any tendency to shift to part-time workers who were not covered. This reflects the fact that in Canada part-time workers were invariably covered, although in Alberta students who worked part-time during the school year were subject to a lower minimum wage which may explain the anomalous result for that province.

Mercier 1985

Mercier (1985) uses time series regression to estimate the employment effect of minimum wages for the province of Quebec for the period 1966-81, separately for teens 14-19 and young adults 20-24 and separately for males and females. Negative employment effects are generally found, larger for teens than for young adults, and larger for females than males. A wide range of specifications were used, with the elasticities generally, but not always, in the earlier "consensus range" of -0.1 to –0.3.

Grenier and Seguin 1991

Grenier and Seguin (1991) replicate the earlier time analysis of Swidinsky (1980) based on pooled cross-section (5 regions) time series (1956-75) for teenagers, and they repeat it for the time period 1976-88. They replicate the fairly strong negative effects on employment and labour force participation and the weaker positive effect on unemployment as found in Swidinsky in the earlier 1956-75 time period. However, in the 1976-88 time period the effects are usually statistically insignificant, leading them to conclude (p. 124): "the minimum wage index is no longer significant in the estimated regressions. This suggests that the influence of the minimum wage on the labour market of teenagers is weaker than it used to be, or, at least, that it is more uncertain."

Cousineau, Tessier and Vaillancourt 1992

Cousineau, Tessier and Vaillancourt (1992) use time series analysis of quarterly data for the Ontario economy for the period 1968 to 1990 for women and 1975 to 1990 for youths (15-24). They regress the unemployment rate of these groups on a measure of the minimum wage relative to the average manufacturing wage and other control variables.

Their results indicate that a 10% increase in the minimum wage raised the unemployment rate of women by 1.4 percentage points and of youths by 1.5 percentage points. This would imply that the minimum wage proposal at that time (which would increase the minimum wage from 0.47 of the average industrial wage to 0.60 of the average industrial wage) would have increased the unemployment rate of women and youths combined by about 1 percentage point – or about 10% based on their unemployment rate of around 0.10 at that time. They indicated that their results were very similar to ones estimated for Quebec.

Johnson and Kneebone (1991)

Johnson and Kneebone (1991) estimate the impact of minimum wages and unemployment insurance on the natural rate of unemployment for each of the provinces over the period 1961 -86. Their natural rates varied from a low of 5.4% in each of the years 1965-67 to a high of 8% in 1978. They hypothesised that minimum wages should increase the natural rate "because an increase in the minimum wage both decreases the quantity of labour demanded and increases the quantity of labour supplied." (p. 1307).

They find that minimum wages increased the natural rate of unemployment in 6 of the 10 provinces although the impact was statistically significant in only 3 of those cases. Minimum wages reduced the natural rate in 4 of the 10 provinces, albeit the effect was significant in only 1 case. Overall, their results provide weak evidence of minimum wages increasing the natural rate of unemployment. In those provinces where the minimum wage had a statistically significant effect on increasing the natural rate of unemployment, the magnitudes were such that an 0.10 increase in the ratio of the minimum to the average wage in the province (e.g., from 0.50 to 0.60) would increase the natural rate of unemployment by 1.7 percentage points in Newfoundland, 1.3 percentage points in New Brunswick and 0.6 percentage points in Saskatchewan.