by Aidan Robern
This New Year was rung in with higher salaries for minimum wage earners across Ontario. On January 1st, the minimum wage in Ontario increased from $11.60 to $14 an hour and is scheduled to increase by an additional dollar in January 2019. Despite some real issues with these increases and the rumours of doom and gloom, this bold policy will ultimately do much more good than harm for the province and its workers.
The Bank of Canada (BoC) projects that the Ontario increase, combined with other minimum wage hikes across the provinces, will lead to 60,000 fewer jobs nationally by 2019. What has been much less circulated is that the BoC, as well as nearly every major commercial bank in Canada, also projects that the increase in total wages will offset the lost income from job loss by a factor greater than 2:1. In other words, the total amount of money made by current minimum wage workers will increase, thereby increasing Ontario’s GDP. Some have attacked this projection, citing that the forecasts are based off historical data of minimum wage increases that were in smaller increments, and are thus irrelevant to the current case. While it is true that the 2018 minimum wage increase of 21% is unprecedented across North America, historical data still shows no association between minimum wage hikes and economic downturn. A more pressing/urgent issue is that an increase in the average income of a minimum wage worker does nothing for those who become unemployed due to the policy. The consolation is that the Bank of Canada predicts that the minimum wage increase will lead to job losses in the short run, with an ambiguous effect in the medium term. As such, there will be less jobs because of the increase, but this effect is only temporary.
Another concern arising from the wage hike is that major businesses like Loblaws and Tim Hortons, who rely on low-skilled workers, are protesting the wage hike as being unfair on their bottom lines. Some employers have responded to the wage increase by eliminating or reducing employee benefits. These companies argue that reducing benefits is necessary to stay in business. While some Tim Horton’s franchises that have cut perks and benefits such as dental coverage, drug plans, free coffee, free uniforms, etc., others have not. This leads me to believe that those offending franchises are inefficient and can learn a thing or two in terms of minimizing costs from those that did not make cutbacks. Big corporations can also consider a small price increase to cover some of the higher wage costs. For example, if a Tim Horton’s raised their price for a cup of coffee by 5 cents, it would likely cover a large portion of the costs and the company would still be able to retain its advantage as a seller of inexpensive coffee.
An additional rumour is that “the minimum wage hike will cause the automation of jobs“. This requires an important clarification. While the hike in the minimum wage will not cause automation, it will accelerate the rate at which jobs get automated. Fast food and grocery store cashiers and other lower skilled employment will eventually get replaced by technology as robot productivity increases. So, while the wage hike increases the relative cost of a human worker, it only moves up the timeline during which that worker would have been replaced.
There is also the false claim that price increases because of the minimum wage hike will eliminate any gains in the purchasing power of minimum wage workers. This is akin to saying that minimum wage workers drive almost the entirety of inflation. Minimum wage earners only contribute to a small fraction of overall consumption and so it is nonsensical to expect prices to increase proportionately to the increase in minimum wage workers’ incomes. In fact, the BoC estimates that inflation will only increase by 0.1 percentage points in 2018 because of the hike.
A more legitimate criticism of the wage increase is its potential impact on local businesses. Unlike chains, these companies, normally in the food and beverage or retail industries, operate in a hyper-competitive environment. Employment is often the largest overhead cost to these companies, which means that a significant increase in wages will drastically increase their costs, possibly forcing them to freeze hiring or shut down. Many people argue that if you can’t operate while paying employees $15 an hour, you do not deserve to stay in business. These people do not understand how tough a daily grind it is for a small business owner just to stay afloat. Small companies are an integral part of the fabric and culture of both larger cities and smaller communities. Kensington Market and the numerous food and culture festivals in Toronto are the result of local, independent businesses who were given the opportunity to thrive in our city, and the government should explore avenues of helping these businesses adjust to the increase.
We are at a crossroads in Ontario and in Canada. On the one hand, GDP growth has been very good and unemployment is at a historic low. On the other hand, inequality is increasing, both between generations and within them. Increasing the minimum wage to $15 in 2019 is a bold policy that takes advantage of our current boom to address the issues that will define our future. Everyone working full-time should be able to cover their basic needs —something impossible with a $12 minimum wage in Toronto. I would have liked to have seen the implementation of $15/hour done more incrementally, to avoid the huge shock that this 21% immediate increase will cause on small businesses. A 3 or 4-year plan, like the Alberta model, would have had a smaller short-term impact. The 2-year plan was likely chosen to see big results in an election year. Nevertheless, we must bear in mind that any policy aimed at improving things in the future will have short-term trade-offs. Whether the decision to implement $15/hour in Ontario was political or not, I would be shocked if in 20 years from now, we look back at the Wynne government’s decision to aggressively address income inequality by increasing the minimum wage as a bad one.
Aidan Robern is a Master of Public Policy candidate and Clark Fellow at the School of Public Policy and Governance. He holds an Honours Bachelor Degree in Economics and International Relations from the University of Toronto. His policy interests include public finance, labour policy, and intergovernmental relations.