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“Too high” or “too low”? Assessing Nova Scotia’s modest minimum wage hike

On April 1st, Nova Scotia’s minimum hourly wage increased from $12.55 to $12.95. Is it now “too high” or “too low”?

April 6, 2021

3-minute read

We know for sure that the minimum wage in many other places is significantly higher. In the United States it is:

  • $12.15 (U.S.) in Maine ($15.26 Canadian)
  • $13.50 (U.S.) in Massachusetts ($16.96 Canadian)
  • $14 (U.S.) in California ($17.59 Canadian) for firms with 26 or more workers and a $13 (U.S.) ($16.33 Canadian) for smaller employers.

The Australian hourly minimum wage of $19 (AUS) converts to $18.46 Canadian and the U.K. minimum wage of £8.12 is worth $14.05.

Within Canada, B.C.’s minimum wage is at $14.60, Alberta’s is $15, and Ontario’s minimum is $14.25.

There are also some places where the poorest paid get even less than they do in Nova Scotia. New Brunswick ($11.75) and Newfoundland and Labrador ($12.15) are examples in Canada. In the U.S., in states like Kansas, Kentucky and Louisiana, the federal minimum wage (currently $7.25 U.S., equal to $9.11 Canadian) sets the wage floor.

So, a big question has always been: Is there a cost, like higher unemployment, to having a higher minimum wage?

For the past year, unemployment numbers around the world have been dominated by the impacts of COVID-19, so the most reliable comparisons are from pre-pandemic times. There is no clear indication of systematically higher unemployment rates in places with higher minimum wages. For example, unemployment in 2019 averaged 2.7% in Maine, 3% in Massachusetts and 4.2% in California compared to 3.2%, 4.1% and 4.7% in low wage Kansas, Kentucky and Louisiana respectively.

In Canada, Newfoundland and Labrador and New Brunswick have lower minimum wages than Nova Scotia, and higher unemployment for the last decade.

For many years, economists have cautioned, on theoretical grounds, that if the minimum wage is raised too high, employers will lay off labour when it becomes too expensive—and economists remain convinced that a very high minimum wage (e.g. $35 or $40 an hour) would cost a lot of jobs.

A conceptual possibility is not a practical reality and careful analysis of the data on actual minimum wage changes has produced a consensus recognition in economics that over the range of minimum wages actually observed, there has not been much, if any, net job loss when minimum wages have been increased.

A higher minimum wage will help reduce poverty, but it cannot, by itself, solve the poverty problem. The poverty of a family depends partly on how many mouths there are to feed, something which the minimum wage for individuals cannot address. The living wage that is adequate to sustain a family with children is well above the minimum wage, everywhere in Canada.

But a higher minimum wage does still matter.

It pushes firms to emphasize product quality and efficiency—rather than depend on a low-wage and low-productivity strategy to stay in business—which improves productivity growth.

A higher minimum wage reduces income inequality by pulling up the earned income of the least well-off.

A higher minimum wage reduces income inequality by pulling up the earned income of the least well-off.

And in these COVID-19 times, when the essential social role played by many low-wage workers has become so clear, it provides a bit better recognition of their contributions.

Nova Scotia’s Minimum Wage Review Committee is charged with annually determining the level of our minimum wage. It has to find a balance that reflects the needs of workers for adequate pay, the ability of employers to pay them and the ever-changing competitive context of wages and prices elsewhere in Canada.

And predictability is useful: California’s minimum wage goes up by another dollar per hour in 2022, but everyone there has had lots of time to plan for it.

So, my own recommendation would be that Nova Scotia should move, over the next two years, to peg the minimum wage at 60% of the Canadian median hourly wage in the previous year. Since that was $25.50 in 2020, our target would now be approximately $15 hourly, but it could be approached in stages—i.e. $14 per hour minimum in 2022, $15 in 2023 and thereafter linked to the previous year.

The median hourly wage separates the top and bottom half of wage earners and, therefore, is the best reflection of wage trends for most workers. The 60% criterion for a minimum standard relative to community norms has, for years, been the European standard in poverty measurement.

Since the U.S. is now actively debating an increase in their federal minimum wage to $15 hourly (equal to $18.85 Canadian) and increases to this level of minimum wage are already built into the law of numerous states, Nova Scotia would not suddenly become “uncompetitive” internationally.

A higher minimum wage would help us become a somewhat fairer and more inclusive community.

An edited version of this is available in the Chronicle Herald.

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