Minimum Wage in BC

Source: http://www.motherjones.com/

With all the discussion around minimum wage - particularly the push for a $15 minimum wage. I was recently asked my opinions on the matter. 

Although I have many, which are two-sided and highly contingent on our basic assumptions of market structure in hiring minimum wage employees, the point here is not to make a bunch of normative statements. 

From my readings, much of the literature seems to be split on minimum wage, for every study I have read which supports raising minimum wage due to some list of net benefits, there is another study which is against minimum wage for some list of net costs. 

Rather here. I wanted to briefly evaluate the minimum wage condition here in BC. 

the following utilizes minimum wage data over the last 20 years which I obtained from here and utilizing the all-items Consumer Price Index for both BC and Canada from here. 

using these data sets I created two plots.

first, in BC minimum wage is not indexed to inflation, as a result, it is set intermittently based on the political pressure of the time. 

thus the first plot (below) shows the nominal minimum wage compared to what the minimum wage would have been if it had been indexed to inflation. Here I have indexed it to both the Canadian inflation rate as well as the BC inflation rate for comparison. 

What we witness is that in relation to 1997, the minimum wage today is higher than it would have been if the minimum wage had been inflation adjusted. Keep in mind this was definitely not true between 2005 and 2012. 

The next plot (below) demonstrates the real minimum wage (in 2017) dollars over the last 20 years. Again this real wage is constructed using both Canadian and BC CPI data, then compared to the nominal. 

Nothing too surprising from this graph, most the intuition could have been pulled out of the previous by comparing an inflation-adjusted wage to the true wage. But what we witness is a reinforcement of our previous statement that minimum wage in real terms is higher today than it was 20 years ago. 

Due to the nearly 10 years of constant wage at $8.00/hr we see the outcome that between roughly 2003 and 2012 the real minimum wage was lower than it was in 1997. That is those individuals earning minimum wage saw a steady erosion of their purchasing power over this almost 10 year period due to inflationary pressures. It took nearly 2 years of increasing minimum wage, from about 2010 to 2012 for the real minimum wage to match its 1997 level before continuing to increase. 

Keep in mind this is strictly observational - there are no statements being made that 1997 was the proper minimum wage, which subsequently saw years of erosion. Nor is today's minimum wage necessarily a correct minimum wage either. 

Depending on our assumptions of labour markets minimum wage can either help correct a market failure (in the case of monopsony or oligopsony) or in any other case minimum wage will cause a market failure. 

Final note, because all around we are seeing a big push for $15/hr minimum wage. My big response to this is what makes $15/hr so special? based on the market situation, perhaps no-minimum wage might be optimal, perhaps $16.26 might be optimal. 

The takeaway is that, as far as I can tell, there is nothing special or optimal about a $15/hr minimum wage, rather it is a convenient, round, rally cry - where $14.12/hr just does not have the same ring to it. 

What are your thoughts? feel free to comment below.