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The effect of minimum wages on consumption in Canada

Published online by Cambridge University Press:  01 January 2023

Young Cheol Jung ,
Adian McFarlane  and
Anupam Das
Young Cheol Jung
Affiliation:
Mount Royal University, Canada
Adian McFarlane
Affiliation:
King’s University College at Western University Canada, Canada
Anupam Das*
Affiliation:
Mount Royal University, Canada
*
Anupam Das, Department of Economics, Justice, and Policy Studies, Mount Royal University, 4825 Mount Royal Gate SW, Calgary, AL, Canada T3E 6K6. Email: adas@mtroyal.ca
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Abstract

We use Canadian data over the period of 1991Q1 to 2019Q2 to examine the effect of higher minimum wages on consumption, measured as the real retail trade sales per adult population. Such an examination is rare in the extant literature and it is timely given the increasing debate concerning the stimulus versus inflationary effects arising from wage polices because of COVID-19 global pandemic. We apply the autoregressive distributed lag model to determine the causal relationship between these variables. We find one long-run cointegrating relationship that runs from the real minimum wage to the real retail trade sales. In addition, we find that a 1% increase in the minimum wage is associated with almost a 0.5% increase in real retail trade sales in the long run. While our findings rest on several statistical assumptions, there is strong evidence in support of the position that minimum wage strengthens aggregate consumer spending, and thereby the standard of living, economic growth and stability. This is a position that differs from the conclusions drawn from mainstream academic and policy debates on the economic usefulness and efficacy of minimum wage increases.

Keywords

C30E21E24autoregressive distributed lagcointegrationconsumptionminimum wage
Type
Original Articles
Information
The Economic and Labour Relations Review , Volume 32 , Issue 1 , March 2021 , pp. 65 - 89
Copyright
Copyright © The Author(s) 2020

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