The government is making it harder for businesses to survive in Ontario

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Appeared in the Ottawa Sun, June 7, 2017

Last week, Premier Wynne’s government announced a whopping 32 per cent increase to the minimum wage. The hourly wage floor will climb from $11.40 today to $15 in 2019.

In the days leading up to and following the decision, much analysis focused on the negative impact on low-skilled workers. Specifically, economists and other analysts raised concerns that such workers would see their hours reduced, and that in the worst case some employees would be let go altogether.

These are important implications of a minimum wage hike. Another important issue, however, that has received much less attention is the impact on the survival prospects of businesses that employ inexperienced, less-skilled workers.

There’s a growing body of research on the effect of minimum wage hikes on businesses survival.

Consider the results of a new study from researchers at the Harvard Business School that analyzed the impact of a recent spate of minimum wage increases in San Francisco on restaurant closures in that city.

The study found that a one dollar increase in the minimum wage leads to a 4 to 10 per cent increase in the likelihood of “firm exit.” In other words, a higher minimum wage made it more likely that San Francisco restaurants would go out of business.

This result is in line with an earlier study on the impact of minimum wage hikes on restaurants throughout the United States, which found the likelihood of a firm exit was particularly high among labour-intensive restaurants that relied heavily on a relatively large number of employees.

Of course, shuttered restaurants can’t employ anybody, so one especially unfortunate effect (on top of the heartache for restaurant owners and their families) of wage floor hikes is the reduction of employment opportunities available for young people seeking a first job.

And remember, the higher labour costs in Ontario will be layered on top of high electricity prices, which have shrivelled bottom lines for many business people. For companies employing inexperienced or less-skilled workers, the new minimum wage hike will make it even harder to survive, let alone thrive.

And it’s not just the impact on existing businesses. The minimum wage hike will impact the decision-making process for individuals and companies who are considering investing in the province. Firms can often choose where to invest, and artificially-inflated labour costs and high electricity prices will be strikes against Ontario.

Indeed, the Harvard study also showed that higher minimum wages discouraged firm entry in San Francisco’s restaurant industry. Clearly, the policy didn’t just cause existing restaurants to fail; it prevented new ones from opening. For a jurisdiction such as Ontario that desperately needs more business investment, this is a serious concern.

Of course, government neither can nor should offer any guarantee of success for business owners. Letting people take risks, face consequences if they fail, and enjoy rewards if they succeed is essential for a dynamic and growing economy. But the work of keeping a business alive and growing over time is tough enough without government policies that artificially inflate costs. And yet, with a big increase to the minimum wage, that’s exactly what Premier Wynne’s government is doing.

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