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The risk of raising minimum wage to improve american economy is it worth trying

That means more demand for what businesses have to sell. The counterargument is that this would add another gold-egg-laying goose to the mix, and spur the demand that creates jobs in the first place. Unsqueeze the driver of growth Domestic consumption drives the economy, in Canada and around the world.

Housing costs have been rising in the biggest cities where most of the population lives. That is eating up even more disposable income, constraining how much of the monthly budget is left to make purchases from domestic and international producers. When higher income households see wage gains, some of it goes to savings.

Additional consumption also often flows to vacations and luxury goods, often imported.

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In other words a non-trivial part leaks out of the local economy. When lower income households see a sustained rise in incomes, they spend virtually all of it. Most goes to food more nutritious food or eating outbetter health care and more education. Sometimes it also goes to rent moving to a better neighbourhood. Almost all of this spending stays in the local economy.

So boost the minimum wage and you boost the economy from the bottom up. Increased consumer spending will grow the top line of businesses, and increase the need for more workers to meet the higher demand for goods and services…and earning better pay.

Rising costs will also raise productivity, something virtually every business and economist says we want and need. Boosting wages may knock out some jobs and some marginal businesses. Job loss and teen angst Economic theory offers a perfectly reasonable assumption: Theory has not been borne out by evidence, with one possible exception: A 2016 study examining 78 years of federal minimum wage hikes in the U.

Between 2013 and 2014, 13 states increased the minimum wage. The majority of these states saw above-average job growth. The point is, even where there are job losses, other opportunities open up, and there is more purchasing power to spur demand. Furthermore, higher minimum wages improve not just the top line, but the bottom line of business.

Walmartwhich last summer reported higher than expected profits, partly due—according to the company—to paying its workers higher wages. But what about the kids? Though their unemployment rate has been very slowly falling, young Canadians 15 to 24 are the only demographic group who have seen their employment rate remain far below pre-crisis levels.

The Economic Case for Raising the Minimum Wage

This means there are more young people simply out of the labour force. A growing group of idle young men has never produced a happy turn of events. But minimum wage policies are not the only worry young workers face.

Their unemployment rates go up even when the inflation-adjusted value of minimum wage declines, because macroeconomics swamps all. Any reduction in demand will mean last hired is first fired.

That means young people and newcomers always have higher unemployment rates, no matter the level of the minimum wage. In Canada, the proportion of people aged 20 to 24 working a minimum wage job doubled since pre-recession, as did the proportion of people aged 25 to 54.

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Click charts to enlarge The fact is, a higher proportion of teenagers work at a minimum wage job in most provinces across Canada today than a decade ago 49 per cent across Canada, 70 per cent in Ontario in 2016but a growing proportion of adults have been doing so as well. Click to enlarge In 2016, 64 per cent of minimum wage workers across Canada were not teenagers, up from 52 per cent in 2006.

In Ontario, the proportion of minimum wage workers who are not teenagers has risen from 45 per cent to 61 per cent in a decade. When do we start to be concerned about the macroeconomic effects of so many workers having to wait for a law to change before they get a pay hike? Have you ever tried to change a law? In the 1950s and 1960s, the manufacturing sector provided a growing share of middle class job opportunities, thanks to strong unions.

In the 1970s and 1980s, growth of the public sector and its organization accomplished the same. Some say it should be enough to lift someone out of poverty if they work full time and full year. It was about acknowledging the inter-relationship of all work, and making sure no one got left too far behind as wages grew.

Once you have reached the target level, annual inflation adjustments should take care of increases; but the level should be reviewed every five years, in case things are getting out of whack. This makes the process rooted in logic, and predictable, both of which rightfully improve business buy-in.

Collective bargaining covers all workers, and minimum pay in these agreements is most commonly between 60 and 70 per cent of average wage rates. The elephant in the room: Of course, there will be some job losses, and some smaller businesses that go under.

There are always some marginal businesses for whom any higher cost—electricity or any other input, a legal dispute—will mean The End. That is genuinely heart-breaking for that business. Low wages help maximize profits.

Did you know at least half of all minimum wage workers in Ontario work for employers with over 500 employees?

The same is true in most other provinces. After all, these are also rising input costs. Businesses will understandably worry that uncertainty from south of the border may make all of this more challenging to implement. The future is uncertain. That was just challenged in Ontario. And not a moment too soon. Armine Yalnizyan is a Toronto-based economist and business commentator. You can follow her on twitter ArmineYalnizyan The author wishes to thank the team at Statistics Canada for the timely production of these custom tabulations.

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