Concern still looms over effects of the minimum wage increase in Ontario

Almost four months after the Ontario government implemented its minimum wage hike, businesses and workers continue to express a mix of reviews over the long-term impact of the increase.

On Jan. 1 the province increased its minimum wage rate from $11.60 to $14. There were also a variation of wage increases among individuals under 18 years of age, as well as liquor servers, fishing and hunting guides, and homeworkers. Barring any legislative changes, the minimum wage will rise to $15 an hour on Jan. 1, 2019.

While the increase proved popular among government bodies and labour advocates, some business owners and minimum-wage workers questioned such a large increase over such a short period of time.

Ashley Cannon, general manager at Fiazza in downtown Ottawa, says it is important that employees are compensated fairly but she says the speed and the size of the wage hike was “irresponsible” for small businesses.

“Because I’m at the management level, I was kind of stressed and a little bit annoyed because I felt that this change is going to impact us a lot in a very short amount of time with little time to figure this all out,” said Cannon.

She says that while the staff was initially excited at the prospect of receiving a higher wage, the increased media coverage raised questions about the wage hike also increasing the cost of food and supplier products for businesses.

“Now everything is going to go up. Not only do we have to accommodate for higher labour but a higher overall cost of food and products,” Cannon said.

[Photos in gallery © Arianna Paquette]

In a report by Statistics Canada, there was a 2.1 per cent increase on the consumer price index in Ontario from February 2017 to 2018. According to the index, the price of food purchased from restaurants in the province saw a 6.6 per cent increase.

This is the biggest price jump to occur since Prime Minister Brian Mulroney introduced the federal goods and services tax in 1991, raising restaurant prices by 7.2 per cent.

As the Ottawa area manager at Aquasport, a retail swim-wear chain based out of Montreal, Rosie Gibbons says that the minimum wage increase has also created benefits and challenges among herself and her staff.

“My overall reaction is that I do think it is a positive change,” she said. “I mean, it is hard to survive off of $14-an-hour full time, but it’s a step in the right direction for sure.”

When the wage increase was implemented Gibbons found that hours for her staff did get cut back.

Initially, Gibbons was able to go over her budgeted time by 10 hours and grant her employees these extra work hours if necessary. With the implementation of the increase, she has been unable to provide those extra work hours.

“I usually had about 10 hours a week, and I could go over those budgeted hours by 10. With the increase, things definitely had to tighten up. It doesn’t seem like a lot, but 10 hours is someone’s difference between 20 hours a week and 30 hours a week,” she said.

Rate of Increase

Minimum wage workers in the province experienced about a 40 per cent increase in wages, within less than two years, which was uncharacteristic compared with previous wage increases.

Between 2014 through 2016, minimum wage in Ontario experienced a very gradual increase from $11 to only $11.40.

Jose Galdo, associate professor of labour economics at Carleton University, says that the problem with the increase is not necessarily the wages itself but the magnitude of the increase and the ripple effect of changes that will slowly surface throughout the next year.

“Will this increase strongly affect the labour market? I don’t think so. Maybe the most important question here is whether this change in minimum wage is going to lead to a cascade effect,” he said.

Galdo says this includes changes in the future creation of employment opportunities and inflation rates.

“The problem is that potential jobs that would be created in a different environment are not going to be created anymore. It’s going to be too expensive to do so. Inflation rates might also be affected because now we have to pay more for services and items,” he said.

Adverse impact of the increase

Some studies suggest there is little or no connection between raising minimum wage and the fluctuating levels of employment.

A report by Paul K. Sonn and Yannet Lathrop for the U.S. National Employment Law Project examined historical data and employment trends in the United States “related to the 22 increases in the federal minimum wage between 1938 and 2009,” to determine whether or not claims of raising minimum wages leads to the loss of jobs.

The report concludes that “basic economic indicators show no correlation between federal minimum-wage increases and lower employment levels, even in the industries that are most impacted by higher minimum wages.”

The report also found that overall employment actually increased after a federal minimum-wage increase, and there were few instances that declines in employment impacted overall employment levels.

In an article by Michal Rozworski, a Canadian economist, he says that many economists, including himself, “support the decision to increase minimum wage in Ontario to $15 an hour,” and that “raising the wage floor makes good economic sense.”

Rozworski says that low wages are essentially bad for individual workers. Those working full-year, full-time jobs and living off of a minimum wage salary still have the possibility of falling short of the poverty line. The situation may be even worse for individuals also trying to support families.

While he admits that there are a number of possible reasons for minimum wage increases to lead to declining employment rates, studies found that there was lower turnover, more on-the-job training and higher productivity after minimum wage increases.

Similarly, Galdo says that a positive impact of the minimum wage increase is the effect it will have on low earners in the province.

“The positive aspect is that people who make less money in the labour market might see a spike in the average earnings that they make, so the increase may actually provide more income to low earners in Ontario,” he said.

He also says that unemployment is not expected to increase significantly because the share of people that are under the minimum wage is under 10 per cent of the labour force in Ontario.

Looking to the future

According to Galdo, the wage increase is not primarily a reflection of the current economic situation in Canada.

“We have, in Ontario, a premier that thinks that everything can be solved by higher expenditures. So, she thinks that we can solve this problem because we offer more expenditures to particular target populations, but this, I think, at the end of the day is about politics, it’s not about economics,” he said.  

Galdo says policy makers should ensure that fairness, equity and efficiency in the labour industry are balanced.

While there may not be a strong urgency to worry about the fate of all minimum-wage workers in the labour market after these wage increases, further attention may need to be paid to the smaller businesses that are struggling to keep up with these demands.

According to Cannon, “what’s nice about small businesses is that it gives opportunities for people who are new to the working environment, to be able to have opportunities for employment. When you raise minimum wage, you kind of negatively impact people trying to get into the work field.”

[360 Photo © Arianna Paquette]