On the minimum wage

dimanche 7 mars 2010 ·

In the United States, the minimum wage is often increased as a results of political decisions rather than what is being done here in Quebec with the setting of the minimum wage at 47% of the average industrial wage and correcting it nearly once a year. It leads to the following scatter plot of minimum wage levels and unemployment in Quebec for 15-24 years old(using StatCan data)

There doesn't seem to be that much of a relation. Hence we should be lead to believe that minimum wages have little effect on youth employment. I admit it is hard the effects of the minimum wage on unemployment for youth, but that is not the point of this post: youth employment on minimum wage is!

We can reasonably say that students who live with their parents and are aged somewhere between 15 ans 25 have a labor supply that is pretty inelastice. I mean, at 16 years old when you're in high school, you only want a job to have your own little income. Hence you will work for 7$ an hour as much as you would work at 9$ an hour even you are less likely to be employed at 9$ an hour. In fact, in December 2009 ,43.4 percent of those who work on the minimum wage in Quebec were aged between 15 and 19 years old and 19.1 percent were between 20 and 24 years old. Around 49 percent are students and 43 percent are full time students. Additionnally, 65.1 percent were part time workers. All of this indicates 1) students who live with their parents 2) students who will make a higher income later when they get out of school.

With the most conservative hypothesis, we see that half of those on minimum wage are hence individuals whose future lifetime income will be higher because of education. This is exactly the problem with the minimum wage, it fails as a tool to redistribute wealth and combat poverty. In the United States, the Congressional Budget Office back in 2007 published a report concerning the minimum wage. According to the CBO, "about 18 percent of the 12 million workers who were paid an hourly wage rate between the federal minimum wage of $5.15 and $7.24 were in families that had a total cash income below the federal poverty threshold in 2004". If every worker had received 7.25$ per hour, only $1,6 billions of the additional $11 billion in wages would have headed by workers in poor families.

I believe such a situation is true also in Quebec just by the look of the aforementionned numbers concerning the number of students on minimum wage. Hence the minimum wage probably is not an efficient tool against poverty and might in fact be counterproductive in the fight against inequalities.

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Bryan Breguet est candidat au doctorat en sciences économiques à l’université de Colombie-Britannique. D’origine Suisse, il a passé les cinq dernières années au Québec au cours desquelles il s’est engagé en politique provinciale malgré le fait qu’il ne possédait pas encore la citoyenneté canadienne. Il détient un B.Sc en économie et politique ainsi qu’une maitrise en sciences économiques de l’université de Montréal. Récipiendaire de plusieurs prix d’excellences et bourses, il connaît bien les méthodes quantitatives et leurs applications à la politique.

Vincent Geloso holds a master’s degree in economic history from the London School of Economics, with a focus on business cycles, international development, labor markets in preindustrial Europe and the new institutional economics. His research work examined the economic history of the province of Quebec from 1920 to 1960. He holds a bachelor’s degree in economics and political science from the Université de Montréal. He has also studied in the United States at the Washington Centre for Academic Seminars and Internships. Mr. Geloso has been an intern for the Prime Minister’s cabinet in Ottawa and for the National Post. He has also been the recipient of a fellowship from the Institute for Humane Studies and an international mobility bursary from the Ministère des Relations internationales du Québec. Currently, he is an economist at the Montreal Economic Institute.

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