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Yukonomist: Minimum wage just one part of the puzzle

The Liberal-NDP alliance raised the Yukon’s minimum wage, effective Aug. 1, to $15.20 per hour. This is in the range of minimum wages in B.C. and Alberta.

The Liberal-NDP alliance raised the Yukon’s minimum wage, effective Aug. 1, to $15.20 per hour. This is in the range of minimum wages in B.C. and Alberta.

The minimum wage is now up almost a third since 2018, when it was $11.51 per hour. That suggests a major cost increase for employers in tourism, hospitality and restaurants. Those are the sectors where most minimum-wage employees work, and also among the sectors hit hardest by the pandemic.

On the other hand, with our ongoing housing crisis it is very tough to make ends meet at even the new, higher minimum wage.

The minimum wage debate is often framed as a trade-off between low-income workers and employers. Those in favour of higher minimum wages see them as ways to reduce poverty. Those against see them as costly burdens on business that result in fewer jobs overall.

Reality is more complicated. Much more complicated. There are literally hundreds of economic studies of minimum wages and, for such a well-studied area, the findings are remarkably divergent.

Early last year, the Yukon Department of Finance published a detailed study of the Yukon minimum wage. It contained a few surprising results.

First, in 2018 when the minimum wage was $11.51 per hour, only about seven per cent of Yukon employees were earning less than $15 per hour. Of these, the majority were making more than the minimum wage. Over half were earning over $14 per hour. Most tourism, hospitality and restaurant owners were already paying most of their staff well above minimum wage.

This is a classic example of something often included in introductory economics textbooks. If there is a labour shortage, and the market rate for labour has been going up so that most employers are offering above-minimum-wage pay, then an official minimum wage has little effect.

The second interesting fact is the composition of the minimum-wage workforce. There were 408 Yukoners earning the minimum wage in 2018. Data on these 408 Yukoners is not available, but if they mirror the Canadian average then around half of these were students or youths living with their parents. The remaining minimum-wage earners were split between single-earner households and double-earner households, where the minimum-wage earner lived with another worker who on average made significantly more than the minimum wage.

The third finding compared the extra cost to business to the benefit to low-income workers. “For every additional $100 the average employer pays out in higher minimum wages,” the report said, “around $70 will go to minimum-wage earners in non-poor families, $30 in gross income to poor households, which after taxes and benefit reduction is a net gain of $22.”

And this is before considering the possible effect if employers respond to higher labour costs by cutting hours or staff levels.

Thus you have a system where a small number of Yukon employers, mostly in low-margin industries hit hard by the pandemic, are paying extra compensation that mostly goes to “non-poor families,” in the words of Yukon Finance.

Note that workers earning slightly above the new minimum wage, who may also be struggling with today’s rents, don’t benefit directly from the minimum wage. They may see some ripple effects as employers raise wages to retain staff earning a few dollars above minimum wage, but this is not certain.

Furthermore, higher labour costs are likely to further encourage automation of entry-level jobs, which you see increasingly commonly in the Yukon. For example, the Yukon government has an automated campsite booking website for Tombstone Park, reducing the number of employees required. And shiny new cardlock gas stations at Stewart Crossing and the Dempster cut-off mean fewer people working in those locations too.

If the Yukon government wanted to attack poverty more directly, it might be better to give money to low-income workers. This could be done directly or through a wage subsidy, as during the pandemic, so the low-income workers took home more money while the employers faced less of a cost burden.

In the longer run, the minimum wage is just one part of the labour market puzzle in the Yukon. Population projections suggest it will be a struggle for our homebuilders to keep up with demand, meaning that high housing costs will continue to contribute to a labour shortage. Immigration to Canada dropped significantly during the pandemic. And our population is aging, which many economists expect will lead to upward pressure on wages in the long run.

These trends are good news for Yukon workers, or at least those who live in houses purchased before the recent run-up in prices. And for Yukon entrepreneurs, it means that labour costs are going to be an ongoing challenge even after the minimum-wage increase fades into the rearview mirror.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.