A higher minimum wage could hurt working Ontarians

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Appeared in the Ottawa Sun, May 17, 2017
higher minimum wage could hurt working Ontarians

As part of a wider set of labour policy changes, the Wynne government may increase Ontario’s minimum wage to $15 an hour, up from the current level of $11.40.

The intention is to help lower-income workers and their families. Unfortunately, such a hike would make it harder for inexperienced and low-skilled workers to find employment and would therefore hurt many of the families the government wants to help.

Let’s look at the facts. The vast majority of minimum wage workers aren’t poor—85 per cent do not live in low-income households, as defined by Statistics Canada’s Low Income Cut-off, a common measure of income. And the overwhelming majority aren’t the primary breadwinners in their household. In fact, a majority (60.3 per cent) are either teenagers or young adults, most of who live with their parents or other relatives.

Finally, 19 per cent of minimum wage earners in Ontario are married with employed spouses. Nearly all (90 per cent) of these employed spouses earn more than the minimum wage or are self-employed.

Yet even though most minimum wage workers in Ontario are not poor, some may think raising the minimum wage could still help many lower-skilled workers pay their bills and therefore may be a good idea anyway.

But here’s the problem—minimum wage hikes have unintended consequences on the labour market that can actually hurt low-skilled workers. Research shows that when the minimum wage rises, the younger and less-skilled face fewer employment opportunities.

The reason for this is straightforward. When the price of something rises, either due to market pressures or new government regulations, people tend to buy less of it. This is as true for business owners when it comes to their expenses as it is for consumers of goods and services. So when the government mandates an increase in the price of less-skilled labour, employers tend to respond by reducing the amount of labour they employ. This can translate into fewer jobs created or fewer hours of work offered to existing employees.

This is why Canadian research shows that a 10 per cent increase in minimum wages lead, on average, to a three to six per cent decline in youth employment. Anti-poverty policies that actually make it harder for people to find work should be viewed skeptically.

In reality, for many young people, minimum wage jobs represent a first rung on the economic ladder, leading to further steps as they gain skills and experience. Making that first rung harder to reach by increasing the minimum wage can therefore impede their ability to launch their independent economic lives and begin earning a living.

Helping individuals and families in poverty or severe economic hardship is an important responsibility of government, in Ontario and beyond. And advocates for a higher minimum wage mean well. But the facts suggest that their preferred policy tool is unlikely to reduce poverty, and for many families, will actually do more harm than good.