MW and Household Consumption: Evidence from High and Low Wage Provinces in Canada

Minimum wage (MW) has become a common policy instrument in several countries and regions across the world. However, researchers are divided regarding whether the MW achieves its intending objectives or not. The current study will examine whether MW enhances household consumption as a sustainable income policy. While the MW is set under the authority of the provinces, resulting in appealing cross-province and time-series diversity, Canada serves as an excellent research center for this type of inquiry. The fact that we can utilize Canadian data gives us the ability to examine the impact of the MW by studying cross-province and time-series variation with a high number of MW changes passed in different jurisdictions. This research utilizes a panel-based analysis, trying to compare the four provinces that provide the highest wage levels (Alberta, British Columbia, Ontario ,and Saskatchewan) with the other six provinces that provide the lowest wage levels (Manitoba, Nova Scotia, New Brunswick, Newfound land/Lab ,Prince Edward Island, and Quebec) for the study period from 1981 to 2019, in Canada. Dynamic Autoregressive Distributed Lag Methods (i.e., Pooled Mean Group, Dynamic Fixed Effect ,and Mean Group estimators) are used to examine the effect of minimum wage on household consumption in the short and long term. The findings demonstrate that MW has a favorable long-term impact on household consumption in both low- and high-wage regions. In both wage categories, the short-term effect is negative, although not statistically significant in the low-wage group. Our findings imply, despite the possible negative effects of MW on employment, it can be an effective tool for improving economic growth and welfare. In other words, it might be better to pay greater attention to the spillover impacts of MW policies while designing them. Keywords: Panel ARDL; Canada; Minimum Wage; Low-wage province; High wage province; Household consumption