Minimum Wage

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MIMINUM WAGES IN CANADA: THEORY,
EVIDENCE AND POLICY
(Prepared for the Federal Labour
Standards Review Commission)

by
Morley Gunderson*

(Revised December, 2005)
* Morley Gunderson is the CIBC Professor of Youth Employment at the University of Toronto, and a Professor at the Centre for Industrial Relations and the Department of Economics. He is also a Research Associate of the Institute for Policy Analysis, the Centre for International Studies, and the Institute for Human Development, Life Course and Aging.

[FLSRC-MinimumWages512]

Table of Contents
INTRODUCTION .......................................................................................................................... 1 RATIONALES FOR MINIMUM WAGE LEGISLATION .......................................................... 1 Alleviating Poverty ..................................................................................................................... 2 Reduce Wage Inequality ............................................................................................................. 3 Place a Floor on Market Transactions ........................................................................................ 3 Eliminate Low Wage Jobs and Encourage Employers to Move up the Value-Added Chain..... 3 Provide an Incentive to Leave Income Maintenance Programs.................................................. 4 Increase Aggregate Demand and Generate Multiplier Effects ................................................... 4 Protect the Unprotected............................................................................................................... 5 Protect the Already Protected from Low-Wage Competition..................................................... 6 Reduce Need for Unions............................................................................................................. 6 Provide a Model to be Emulated by Others ................................................................................ 7 Relevance of Rationales in Current Environment ...................................................................... 7 THEORETICALLY EXPECTED IMPACT OF MINIMUM WAGES......................................... 9 Employment................................................................................................................................ 9 Hours......................................................................................................................................... 11 Labour Force Participation ....................................................................................................... 11 Unemployment.......................................................................................................................... 11 Education Enrolment ................................................................................................................ 12 Spillover or Ripple Effects........................................................................................................ 12 Aggregate Wages ...................................................................................................................... 13 Prices......................................................................................................................................... 13 Fringe Benefits and Working Conditions ................................................................................. 13 Training and Human Capital Formation ................................................................................... 14 Earnings .................................................................................................................................... 15 Wage Inequality ........................................................................................................................ 15 Income Distribution and Poverty...
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