How Ontario's economy will react to $15 minimum wage

Depending on whom you listen to, the Ontario government's move to jack upthe minimum wageby nearly one-third will either be devastating for businesses and kill jobs orgive a big boost to the economy as low-paid workers spend more.

These are the polar opposite views coming from business and labour, the usual suspects in the never-ending debate about how much people should be paid.

But the huge body of research into the economic impact of minimum wage hikes does not definitively support either conclusion.

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"The employment effect of the minimum wage is one of the most studied topics in all of economics," begins a comprehensive report by John Schmitt of the Centre for Economic and Policy Research in Washington, D.C.

Schmitt's paper refers to hundreds of individual studieson minimum wage hikes and takes a detailed look at several meta-studies(whichanalyze data from multiple research projects).His conclusion: "The minimum wage has little or no discernible effect on the employment prospects of low-wage workers."

The critics of minimum wage hikes will certainlybe able to point to individual studies that show a significant negative effect on jobs. But measured against the bulk of the evidence, these studies are either outliersor unscientifically designed.

Schmitt stresses that no one should drawbroad conclusions based on a single study when "the cumulative experience of scores of studies" shows minimum wage increases have not proved to be big job-killers.

How is it possible that pushing the minimum wage up doesn't lead to job loss? It turns out that businesses do what they do best: they adapt to the new market forces.

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Yes, some employers will cut jobs, hours or benefits. Others push prices up, and some absorb the wage hikes with lower profits.Schmitt'sreview of the research found that the most common ways that businesses adjust are by increasingproductivity and reducing employee turnover, something that is a hidden but significant cost to employers.

The researchinto one particular result ofraising the minimum wage isdefinitive: it puts more money in the pocket of minimum wage workers.

The research on the broader economic impact, however, is inconclusive.

The non-partisanU.S.Congressional Budget Office looked at the effect of boosting the federal minimum wage to $10.10 per hourfrom the current $7.25 per hour, proportionately a larger increase than Ontario is planning.

Its report concluded that the increase would provide $31 billion more in wages for the lowest-paid workers, but the economic impact would be largely offset by some workerslosing their jobs, lower business profits andhigher prices.

"Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2billion," concluded the report. That equals 1/100th of one per cent of U.S. GDP, a drop in the economic bucket.

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"Classical economics suggests there's going to be huge job losses, and studies indicate that's not likely to be the case," said Bernie Wolf,economics professor at York University's Schulich School of Business.

"It really depends," said Wolf in an interview Friday with CBC News. "How strong the economy is at the time, how big the increases are, those kinds of things will have an impact."

"The higher costs for business are offset by the boost in consumer spending when workers are paid more," said Paul Sonn, senior counsel with the National Employment Law Project, a worker advocacy organization based in New York.

Theimpactvaries among different sectors, said Sonn in an interview with CBCNews.

"For the average firm in the economy it's not that big a cost, because mostindustries only have a relativelysmall portion of low-wage labour," he said. "Relatively few industries use a lot of low-wage workers, such as restaurants."

Sonn finds it striking that the number of U.S. business owners and executivesin favour of minimum wage increases appears to be growing, according to polling.

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"There is more support being voiced than ever before for raising the minimum wage, including to the $15 level, by business community voices," he said."There's a segment of the business community ... that opposes any increase in the minimum wage large or small."