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The Progressive Economics Forum

The Ontario Chamber’s economic impact analysis of Bill 148 still doesn’t make sense

On Monday, the Keep Ontario Working coalition spearheaded by the Ontario Chamber of Commerce released an analysis of the impacts of Bill 148 in Ontario, which will introduce a $15 minimum wage by 2019 and a host of other employment standards improvements. The analysis raised many red flags: it focused only on costs, predicting very large negative impacts out of line with decades of research in economics and appeared to include a significant math error. What’s more, the analysis was incomplete: just a few summary slides and no description of how results were derived, the study a black box.

Zohra Jamasi, an economist at the CCPA and I, summarized these concerns in a post at the CCPA’s Behind the Numbers blog. I also outlined the math error, which incorrectly claimed that a 0.7% increase in prices would amount to $1300 of new spending on average per household per year, on Twitter:

These concerns were echoed by many prominent Canadian economists on Twitter from across the political spectrum:

In response, CANCEA, which carried out the analysis for the Chamber, hastily released a second set of slides, with a few more details about its methodology. After reading over this second set of slides, it is hard not to conclude that the analysis is still not worthy of serious engagement.

Conspicuously missing from the summary slides of results in the newly-released presentation is the $1300 figure for increased annual household spending. It appears our analysis was correct and this was an error at best, a misrepresentation at worst.

It turns out that $1300 is near CANCEA’s maximum estimate for price increases if all costs are passed on through higher prices with no job loss or other negative impacts. It bears no relation to the other 0.7% figure, which is their most-likely case estimate. Even if one believed both the estimates of $1300 and 185,000 jobs lost (both are overstated), sharing them alongside one another is wrong, misleading and irresponsible. The Chamber is double-dipping to stoke fear, essentially telling people that they will pay for the minimum wage increase twice over.

The first slide deck released stated that low-end estimates were used in most cases. It is now clear that this is not the case. In fact, a number near the extreme worst case estimate for price inflation was chosen and released to be reported by the media.

On a side note, it also appears that the authors are using the wrong consumption data to calculate percentage increases for prices. The latest Statistics Canada data clearly states that average consumption is around $60,000 per household ($62,719 in 2015, the latest available). The authors appear to be taking their data from expenditure-based GDP tables where final consumption also includes taxes.

So  their figure of a 0.7% price increase is too low. Their calculation for a middle estimate of increased spending is $650 per year ($23 billion total cost times 29 per cent passed onto prices divided by two years). This is actually a price increase of just over 1.0% per year and (again!) out of line with economic research. An increase of $1500 in this sum would be 2.4% per year, even further out of line with research estimates.

In addition, and equally importantly, the CANCEA assumptions about the impacts of a minimum wage increase are as problematic as we had guessed. We now know just how out of line with mainstream economic research from the past two decades they truly are.

It is worth repeating that the weight of evidence from the United States points to job loss effects that are statistically indistinguishable from zero. The few very recent studies from Canada that have used these new economic methods agree, finding job loss effects for teenagers smaller by half than those of earlier studies, and with no effect for workers over 25. The estimates used by CANCEA are on the pessimistic end of estimates of potential job loss (see this widely-cited “meta-analysis” for US studies done before 2009 and this one for studies carried out globally 2010-2014).

Using more opaque methods, the CANCEA study appears to repeat the mistakes of a discredited 2009 Fraser Institute report from British Columbia. This non-peer-reviewed study with employment effect (job loss) estimates far out of line with the research summarized above is one of only two studies the authors cite. They appear to repeat its mistake: using estimates that are applicable only to teenagers and young adults, a small fraction of workers making under $15 in Ontario, and applying them to all workers. The result is a catastrophic picture very different from the findings of the vast majority of modern research.

It is also important to note that very large job losses appear to be assumed in, thus pre-determining the outcome to a substantial degree. Beyond that, the analysis explicitly excludes other key aspects of mainstream minimum wage research that economist think help moderate the costs to business from a wage increase:

  • Lower turnover of employees
  • Higher productivity from a better-paid (and due to other provisions, healthier) workforce

Analyses of the impact of the minimum wage should consider these and other effects on the bottom line of firms, or explain clearly why they are excluded.

A third significant issue is that CANCEA does not provide any information about the GDP impacts and associated multipliers coming from their analysis. This despite their model being one that should easily be able to produce these numbers once run. The new slides even note that GDP impacts have been calculated but they are nowhere to be found in what has been released so far.

In an odd twist, the authors are eyeballing numbers that they could easily calculate precisely from the Statistics Canada Labour Force Survey. They “assume” 1.5 million Ontario workers will get a raise up to $15, but we know with good precision that around 1.638 million Ontario workers made under $15 in 2016. They also “assume” that the average wage increase will be $2 when this could also be calculated precisely based on the same data. Why assume and approximate what could be made precise?

Finally, the static total cost figure of $23 billion, one that does not take into account the beneficial effects of increased demand, still appears too high. CANCEA effectively assumes that nearly all part-time, contract and temporary workers in Ontario are being paid a different rate than full-time co-workers with no supporting evidence. This seems significantly inflated and ignores the fact that the language in Bill 148 could be much stronger on equal pay. If unchanged, the Bill’s current, very narrow definition of what constitutes the “same” job will unfortunately make it difficult for many part-time and temporary workers to achieve equality.

Additionally, Personal Emergency Leave is counted as a pure cost measure, when we know that it also produces some savings from healthier, more productive workplaces, and unionization rates appear to instantly bounce up by 2%. Again, this estimate is not justified in any way, and anyone involved in a union organizing drive knows it takes significant time to organize one shop, nevermind 2% of the province-wide workforce.

In summary, we have now seen two slide decks, an unacknowledged and uncorrected misleading claim about price increases, confirmation of unrealistic assumptions and still no full picture as to how these numbers, inconsistent with mainstream research, are being generated.

In summary, we now have seen two slide decks of the Keep Ontario Working coalition’s analysis on Bill 148, but still have no full picture as to how these numbers, inconsistent with mainstream research, were generated. Unrealistic assumptions underpinning the job loss estimates remain unexplained. The misleading claim about price increases remains unacknowledged and uncorrected.

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Comments

Comment from Paul Tulloch
Time: August 17, 2017, 5:11 pm

All great points. The sad part is this report- is we are almost getting to Trump level debates from the right and corporate lobby groups. Yes people will say- at least they tried to use the numbers- but given the effort- I think it is actually worse when they pretend to do real research.

As most know I did do the actual research and the costs for raising 1.6 million Ontario workers using 2016 comes to 6 Billion. Also note that I used actual hours worked per week- as well as the actual dollar value earned – both from the micro file. It was not difficult.

The indirect wage increases- or wage bumping is a bit more difficult- but they did not even try. Instead they used some estimate on the amount of machinery companies would invest to replace labour. How can one say that is a cost associated with minimum wage laws?? That is a choice the corporations make. In many cases it would have occurred eventually and makes society more efficient. Take cashiers for example. Amazon currently has the technology to totally redefine the retail experience through deep learning and AI based tech. The future of the grocery store will not be forever changed- no cashiers will be needed. You pick up your products and leave the store- no line ups- no check outs- transactions are automatically detected and made. These changes are coming regardless of labour costs. So somehow allocating innovation to the costs of minimum wage increases seems quite oblivious to actually existing reality.

Price increases will occur for but not to the level they are claiming. Yes there are unknowns but at some point within the market process of the current machinery of the economy- there are levels of profits that are much larger than these increases in wage earners.

Think about retail. We have the costs for the products- the transactions and distribution. There are many layers of profits within that space. We know factually we do not live in a perfectly competitive world in fact we live within a very massive layering of oligopolistic economic structures. In fact we know this mathematically from Industrial Organization theory- where much of the logic and activity of large corporate entities actions are about keeping competitor out of market shares. From the massive marketing of products to mergers and acquisitions- we have a continual process of ensuring the major structures of imperfect competition prevent and clear and present threats to competitive entries. Small business is a different story- but when was the last time you bought groceries from a mom and pop store?? The age of the big box is a sign of just how such forces work. Commerical real estate space and online presence are a part of such. But many layers of producers and manufacturer have products pass through this gate keeper the mercantilist. In some cases such as Wall Mart- they 3rd circuitry of capitalism- the merchant has usurped the manufactures and producers by obtaining massive control and leverage through such ownership of these spaces. So somehow- through all this- the mass majority of workers within this retail industry make below $15 per hour- many at minimum or just above minimum wage.

So how will these prices be aborbed. Will they all be passed on in some inflationary spiral like scenario as stated by the business lobby groups? Or will such price increases lead to a decrease in demand for such products that produces economic forces that result in bankrupcties for the lessened demand and the over production? Or are many of these products affected located in products that have high inelasticities of demand? I would argue for food- and necessities are located in this space and we will see some willy nilly price increases as the big players control the flow. But for many other products they are elastic- and there will be some pressures on the supply chain- and also the production process of the retail space. Some areas such as commercial real estate owners could see retailers- more likely for the smaller commercial real estate spaces become pressured to bring lease rates down. There are many layers within the value chain of retail that have profits level- and many are not competitive- and hence we do have some profit gouging. So we could see hair cuts from many of the entities involved. Ultimately though- prices will have a tendency to rise- as most of the producers and retailers will simply pass on the new wage increases. But there are some part of the economy that it is not possible and they will be cost cutting and less profits in industries that we know have been enjoying healthly levels of profits. However- there is always finance and derivative trading – maybe the entire economy will soon just become speculation and derivative trading- last time I checked the bank of International settlements- there was 570 Trillion $ tied up in derivative trading- whether it be forex, equities, credit default swaps, housing speculation, hedging, and the rest of it.

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