A little over a year ago, the Alberta government announced that they were assembling an expert panel to assess the provincial minimum wage.
On 24 June 2020, the government updated their website to say that the panel had completed their work and that they were reviewing the report. They provided no information on when that report would be made public or what was in it.
In anticipation of the results, and in response to some recent social media conversations I’ve had, I thought I’d review some information regarding minimum wage in Alberta.
A common argument I hear from people who oppose raising the minimum wage is that doing so will increase the cost of everything. You can see some of those arguments among the more than 500 comments on this recent TikTok video of mine.
But before we get into the data around that, there are a few things to remember.
To start, the last time the minimum wage increased in Alberta was in 2018, when it went up $1.40, from $13.60 to $15.00. That means that if a minimum wage employee was working 40 hours a week, they’d be getting paid $600 a week instead of $544, an increase of $56. That works out to an extra $244 every 4 weeks.
And that might seems like a lot, especially if you run a small outfit with a tiny profit margin. And in that case, you probably would increase prices to offset the increase in costs. Assuming you couldn’t just increase revenue by moving more product.
But even if increasing product prices is the only option for that one company, is that enough to trigger increases across the entire economy?
Well, as of June 2019, only 12.5% of workers made $15 an hour or less. A year earlier, when the minimum wage was $13.60, the percentage making minimum wage was 6.4%. That means that in 2018, when the NDP government increased the minimum wage from $13.60 to $15, 93.1% of workers in the province were already making above the $13.60 minimum wage. The vast majority of the workers in the province wouldn’t have received a wage increase with the increase to minimum wage.
In fact, the average wage in Alberta in 2018 was between $25.37 and $30.56 an hour (depending on whether you belonged to a union), basically double that of the minimum wage.
Even if we bumped up minimum wage tomorrow by another dollar, more than 85% of workers would be unaffected by the increase. Most companies wouldn’t need to pay their employees more just because of a bump in minimum wage.
Now let’s look at inflation. Here’s the cost of living between 1979 and 2019.
CPI, or the Consumer Price Index, compares, over time, the cost of a fixed basket of goods and services purchased by consumers. The above graph shows the CPI for Alberta during this 40-year period.
Clearly, the cost of buying stuff has gone up.
And here’s what the minimum wage looks like during the same period.
Clearly, minimum wage has also gone up during the same 40-year period.
And if both the cost of living and minimum wage increased, it’s easy for some people to make the connection that one must have caused the other.
But before you and I make that connection, let’s look at a few things.
First, the minimum wage increased by 417% during this 40-year period. CPI, on the other hand, went up by 278%. CPI increased at a only a third of the rate that minimum wage did. If minimum wage did influence CPI, it wasn’t in a way that caused the CPI increase to parallel the minimum wage increase.
Second, compare these two graphs.
These graphs show the amount of change in CPI and minimum wage since 1979. And what we see is that there appears to be very little similar between the two graphs.
For example, CPI increased every year over the last 40 years, except in 2012, when it was flat, and 2001, when it actually decreased. Minimum wage, on the other hand, sat dormant in over half of those years.
Take a look at the period between the minimum wage increase in 1986 and the increase in 1998. There were no other minimum wage increases during that time. Yet CPI increased every one of those years. It actually increased by nearly 40% during that 12-year period, despite minimum wage staying stagnant.
Also, notice 2002 on the CPI chart? That was the largest CPI increase during that 40-year period. That was 3 years after one minimum wage increase and 3 years before the next minimum wage increase.
Plus, in the years that saw the largest increases in minimum wage, the CPI didn’t reciprocate with their largest increases. In 1998 and 2018, for example, minimum wage increased by $1.40, the largest increases in the chart. The CPI increase in 1998, however, was only the 21st highest increase, and the 2018 increase was the 13th highest.
There simply is no indication that increasing minimum wage leads to inflation—well, at least not in Alberta during the last 40-years.
Inflation appears to occur regardless of whether minimum wage increases. So, whatever’s driving inflation, it’s not minimum wage increases.
And while you’re trying to determine what is driving inflation, keep in mind this table, taken from a report published by the Parkland Institute in 2018.
It shows the amount each of the 5 largest oil and gas companies in Alberta paid out to shareholders in dividends during a 9-year period starting in 2009. In total, they paid out $31.7 billion collectively, or an average of $3.5 billion per year.
A company pays dividends to its shareholders out of its profits. Profits are basically the revenue that’s left over after they pay all their expenses, including wages. This means that these companies collectively received, on average, $3.5 billion more in revenue each year than they paid out in expenses.
Put another way, these companies each charged, on average, $700 million more every year for their products and services than it cost them to produce those products and services.
That’s only 5 companies though. So, what if we looked at more? Well, Alberta Venture Magazine used to publish a list of the 250 largest Alberta companies. The most recent data I could find in the Wayback Machine was for 2014.
Iff you add up the net income for all those companies, it comes to $31.3 billion. Just for the one year. Given that the population of Alberta in 2014 was 4,120,897, that’s $7,597.00 per each Alberta resident that these 250 companies charged for their products and services above the cost to produce them.
And where does the extra $700 million for the 5 oil and gas companies come from? What about the $31.3 billion for the 250 companies in 2014? Well, it comes from the people who paid for those products and services: the customers.
Profit is built into the price tag of every product and service a company sells. No matter how much a company pays out in wages—whether that’s minimum wage or otherwise—those wages will only ever make up a portion of the sticker price on the store shelf.
Profit will always make sure the sticker price is higher than wages alone would.