NDP minimum wage increases didn’t raise youth unemployment

A few months ago, I published a story that showed a lack of correlation-let alone causation-between unemployment levels in Alberta and increases to minimum wage in Alberta.

As I mentioned in the story, a common argument from those who oppose minimum wage increases is that it leads to unemployment. But I found that between 1976 and 2019, there appeared to no obvious increase to unemployment in Alberta that was directly connected to minimum wage in creases.

For example, for about a 25-year period starting in the mid-1980s, unemployment fell while minimum wage rose. Minimum wage kept going up after that, but so did unemployment.

Specific to the increases the Alberta NDP introduced during their only term in power, during the first year and a half, both minimum wage and unemployment rose. However, for the rest of their term, minimum wage kept rising while unemployment fell (or stayed stagnant). Even when unemployment did rise, it corresponded with the 2015 recession. Their $4.80 increase (or 50% as the UCP frame it) was the largest increase in a 4-year period, yet it apparently had no effect on minimum wage.

Same goes for the other increases.

I’m currently a political economy student at Athabasca University, and in one of the texts I use in my microeconomics class, I found the following:

If the minimum wage is above the equilibrium level, as it is here, the quantity of labour supplied exceeds the quantity demanded. The result is unemployment. Thus, the minimum wage raises the incomes of those workers who have jobs, but it lowers the incomes of those workers who cannot find jobs. . . . The minimum wage has its greatest impact on the market for teenage labour. The equilibrium wages of teenagers are low because teenagers are among the least skilled and least experienced members of the labour force. In addition, teenagers are often willing to accept a lower wage in exchange for on-the-job training. (Some teenagers are willing to work as “interns” for no pay at all. Because internships pay nothing, however, the minimum wage does not apply to them. If it did, these jobs might not exist.) As a result, the minimum wage is more often binding for teenagers than for other members of the labour force.

Mankiw, N. Kneebone, R., & McKenzie, K. “Supply, Demand, and Government Policies”, Principles of Macroeconomics, 8th Canadian Edition, 129–131.

And I thought, “Okay. I guess I’ll check unemployment for just young people. Maybe I found no correlation because my sample size was weighted too much toward the ages outside of young people.”

So, I did.

I once again tracked down unemployment and minimum wage data for Alberta. Then I isolated the unemployment data for just those 15 to 24.

Here’s a chart comparing the two datasets since 1976:

And here it is for all ages:

Notice any differences?

I mean there are some slight differences in the peaks and troughs, but overall, there seems to be no stronger correlation between minimum wage increases and unemployment among 15–24 year olds compared to that of the general population.

For example, both graphs show-as I mentioned earlier-that for about a 25-year period starting in the mid-1980s, unemployment fell while minimum wage rose. Minimum wage kept going up after that, but so did unemployment.

So, according to these charts, if you blame minimum wage increases for the unemployment rising over the last decade or so, then you’d need to blame it for the dropping unemployment of the 1980s, 1990s, and the early 2000s.

What if we look at specific instances when the minimum wage increased. Actually, let’s pick the data surrounding the largest increases in minimum wage.

Between May 2015 and April 2019, when the NDP was the governing party in Alberta, they increased minimum wage from $10.20 to $15.00, or $4.80, the largest increase over a 4-year timeframe.

Here’s unemployment for young people during that same timeframe:

And the general population:

No increases. Not even during the largest 4-year minimum wage increase in the last 4 decades.

Heck, if you want to get technical about it, unemployment dropped from 15.1% in July 2016 to 10% in April 2019 for those between 15 and 24, compared to 9.1% and 6.7% for the general population. Those 15 to 24 years old saw unemployment drop 5.1 points and the general population saw a drop of 2.4.

So, minimum wage under the NDP went up by nearly $5, but unemployment for 15–24-year-olds dropped by just over 5 points. In other words, for every $1 the minimum wage increased by under the NDP, unemployment decreased by 1 percentage point for the age group most likely to be making minimum wage.

For the general population, it decreased at half that rate. That means that as minimum wage rose in Alberta, unemployment dropped twice as fast for young people as it did for the general population.

There just isn’t any evidence that increasing the minimum wage leads to increases in unemployment. Or rather, no evidence that this happens in Alberta.

Even if we look at unemployment for just the age group most likely to be making minimum wage.

So what do we make of the economists’ claim that if the minimum wage is above the equilibrium level, the quantity of labour supplied exceeds the quantity demanded: unemployment?

Well, the way I see it, there are two explanations: either the economists’ theory isn’t provable by data (at least for Alberta), or the wage increases were set below the equilibrium level for young people.

And if it’s the latter-and equilibrium wage is reached through the natural economic forces of supply and demand-why are youth in Alberta still not being paid the wage where supply and demand of labour “naturally” intersect?

Originally published at kimsiever.ca on 15 January 2021.