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:
— Michal Rozworski (@michalrozworski) August 14, 2017
These concerns were echoed by many prominent Canadian economists on Twitter from across the political spectrum:
— Trevor Tombe (@trevortombe) August 15, 2017
— Rob Gillezeau (@robgillezeau) August 15, 2017
Nothing I saw on line had enough information to even consider peer reviewing
— LindsayTedds???? (@LindsayTedds) August 15, 2017
Sad thing is, that $1300 figure was cited all through the media. I can’t imagine they’ll print another article noting this.
— Mike Moffatt (@MikePMoffatt) August 16, 2017
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.