Minimum wage hike won’t reduce poverty in Nova Scotia

By Ben Eisen & Alex Whalen of The Fraser Institute. 

"Advocates often claim that raising the minimum wage is an effective way to fight poverty. In Nova Scotia, the province’s minimum wage has increased by 13.3 per cent (after adjusting for inflation) over the past decade—again, with the stated goal of reducing poverty. But are minimum wage hikes, which may have unintended consequences, effective anti-poverty tools? To answer this question, it’s useful to examine who actually earns the minimum wage.

In reality, the vast majority of minimum wage workers do not live in low-income households but rather are secondary income-earners in households that do not fall below the low-income cut-off line. Therefore, raising the wage floor won’t lift the vast majority of minimum wage workers out of poverty because, quite simply, they don’t live in poverty.

Indeed, according to a new study published by the Fraser Institute, an estimated 91 per cent of people earning minimum wage in Nova Scotia do not live in low-income households. More than half (55 per cent) of minimum wage earners are between the ages of 15 and 24 and are just beginning their working lives. And not surprisingly, a majority of minimum wage earners live with their parents.

Research also shows that people who make the minimum wage tend not to remain in that position over time—only slightly more than one per cent of people who earn the minimum wage in Canada do so for more than five years. Again, many minimum wage earners are simply beginning their life in the workplace. And crucially, many minimum wage jobs provide workers with work experience and skills that will help them secure higher-paying jobs over time.

Which takes us back to the key question. Do minimum wage hikes meaningfully reduce poverty? Well, because most minimum wage workers aren’t poor, minimum wage hikes are—at best—an inefficient policy tool to reduce poverty. It’s like using a guillotine when you should use a surgical knife.

While there’s little empirical evidence to support claims that minimum wage increases do much to reduce poverty, there is however evidence that minimum wage hikes actually hurt the very workers they’re meant to help. For example, when faced with higher wage floors, employers tend to hire fewer people and create less work hours for people they do hire. As a result, there are fewer entry-level jobs, particularly for younger and less-skilled workers. While the pandemic (with its lockdowns and massive income support from Ottawa) may have temporarily warped this equation, policymakers should consider the long-term effects, based on empirical evidence, of higher minimum wages.

So while advocates recommend a higher minimum wage to help reduce poverty in Nova Scotia, most Nova Scotians who earn the minimum wage are teenagers or young adults, and a vast majority of minimum wage workers do not live in low-income households. These facts should inform policy in the province during the COVID recovery and beyond."