Ontario Premier Kathleen Wynne announced yesterday that the province’s minimum wage will climb to $15 an hour on January 1, 2019. It currently stands at $11.40 an hour.
The move will affect the close to 12 per cent of Ontario workers who earn minimum wage, as well as all facets of the economy linked to their labour. Reaction to the news was vehement and polar. Proponents argue the measure is necessary to match inflation and rising costs of living, while opponents suggest such a drastic increase hurts business.
Plenty of research has determined that wage increases for society’s bottom earners is positive. According to a 2006 statement co-signed by over 650 economists, including 5 Nobel prize winners and 6 past presidents of the American Economic Association, “a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.”
But this is not a modest increase – we’re talking about a 31 per cent raise almost from one year to the next. Without a reliable case study to draw from, speculation on the measure’s ramifications is high and heated.
Falling somewhere between the guy who posts “dumb ass Liberals” on all of our Facebook articles and a Nobel prize-winning economist, we’ve outlined some of the pros and cons of a $15 minimum wage in Ontario…
Annual inflation in Canada over the past eight years has totalled 11.25 per cent, while the minimum wage in Ontario has increased by just 8 per cent during that time. This offset has made it harder for people in the province’s lowest income bracket to pay for basic necessities, let alone afford property. The most obvious benefit of a higher minimum wage is that it puts more money in the pockets of those who need it most.
Inflation is kind of like the white whale in Moby Dick in that as soon as you try to catch it, it makes a move to evade being caught. Ontario’s bottom earners may see a small window of increased purchasing power before a considerable increase in the price of consumer goods. Businesses will pass the burden of balancing increased wages with their bottom line onto you, the customer, by charging more for their products. Manitoba, for example, has decided its minimum wage should increase annually at the rate of inflation.
More purchasing power, lower employee turnover, less dependency on government welfare programs, easier recruitment, and higher employee productivity are all economic stimulants derived from a sizeable raise in income. This argument follows the you gotta spend money to make money principle. Small business owners, despite what we’re about to say in the following paragraph, should understand that a healthy economy is essential as they cannot export their way out of recessions.
That higher wages will kill profits, cut jobs and slow growth is the crux of every argument by opponents of a higher minimum wage. Many small businesses cannot afford to incur additional costs without an immediate return, and could be forced to shut down or relocate to another province. Those leaning towards the more “medium” size might even consider moving abroad or outsourcing their labour.
As in most of the developed world, income inequality in Canada is rising at an unprecedented rate. Kevin O’Leary will tell you that the two richest Canadians having as much money as the country’s poorest 30% combined is fantastic; that the money will “trickle down.” Except it doesn’t – it gets lost somewhere in a Cayman Islands bank account. More money for those at the bottom, who spend it at businesses who mostly employ minimum wage workers, keeps cash flowing within the lower and middle class.
The reality is large companies with corporate responsibilities won’t put the interests of bottom-rung employees before their bottom line. An increased minimum wage will likely see less hours for those earning it while their workload is distributed among higher-salaried employees. And the last thing we need is more part-time work. So, small businesses don’t have money for higher wages; while the profits of large businesses are, unfortunately, first and foremost owed to shareholders and investors and not employees.
The robots are coming – and they’ll arrive a hell of a lot faster if companies are going to be forced to pay low-skilled workers $15 an hour. According to Washington-based public policy research organization Brookings, “if the price of labor rises too quickly, businesses have a bigger incentive to replace human labor with automation technology.” And you can be sure $15-an-hour workers aren’t building robots, so there’s no silver lining there.
History has shown, however, that new industries have replaced those phased out by automation – consider the Industrial Revolution after the agricultural era. These new industries will possess their own demand for low-skilled, low-wage (albeit $15 an hour) work. Robots won’t just “take” our jobs, but automation will certainly re-calibrate them. One can speculate how an increased minimum wage accelerates this shift, though not in any quantifiably positive or negative capacity.
One thing is certain: there is no consensus among experts if a significant increase in the minimum wage is objectively good or bad. What is clear, however, is that the most effective increases should be incremental (in tandem with the rate of inflation) as not to invite rash economic shifts.