Ontario’s planned $15 minimum wage will likely hurt young and low-skilled workers
Ontario’s Standing Committee on Finance and Economic Affairs is currently touring the province to get feedback on Bill 148, which proposes various amendments to the Employment Standards Act including, among other labour policy changes, a dramatic hike to Ontario’s minimum wage.
Day 1 of the committee’s hearings sparked controversy when a Liberal MPP acknowledged that the hearings revealed new insights about Bill 148’s potential ramifications. While it’s not clear exactly what ramifications the MPP was referring to, evidence suggests the bill’s proposed changes will produce several negative economic consequences.
Let’s start with the most headline-grabbing change—the proposal to significantly and rapidly increase the minimum wage from its current rate of $11.40 to $15 by January 2019. This is a 32 per cent minimum wage hike in the span of just 18 months.
But here’s the problem: Canadian evidence consistently shows that minimum wage hikes result in fewer job opportunities for inexperienced and low-skilled workers.
Just as consumers tend to buy less of a product if its price increases, employers will hire fewer workers and/or reduce labour costs if government regulations make it more expensive to employ workers without corresponding improvements to workplace productivity. It’s the least skilled workers—often those ages 15 to 24—who lose out on employment opportunities because they tend to be the least productive due to their dearth of experience and skills.
In fact, Canadian research finds that for every 10 per cent increase in the minimum wage, youth employment drops by three to six per cent. Considering that the Ontario government plans an increase of 32 per cent, the negative effects on youth employment will likely be stark.
And because Ontario will implement the marked increase in a very short time period (18 months), the negative effects will likely be magnified as employers—including many small businesses—will have little time to plan and adjust accordingly.
Which brings us to another important side-effect of a significant minimum wage hike—the impact on the survival prospects of businesses that employ inexperienced, less-skilled workers.
Consider the results of a recent 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 four 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.
Bill 148 also proposes to increase labour costs in other ways including mandated higher benefits for employees (more paid vacation, paid emergency leave). The expected effects are similar to the minimum wage hike—fewer job opportunities for low-skilled workers.
As research from the International Monetary Fund finds, increasing the cost of hiring (through mandated increases to leave and paid vacation, for example) can lead to higher unemployment. The IMF research also finds that more stringent and restrictive labour market regulations in general lead to higher unemployment, particularly among youth.
Crucially, the Wynne government plans to mandate higher labour costs at a time when Ontario businesses already face high electricity prices, in part due to provincial government policies. In fact, the proposed labour law changes are just the latest in a series of government policies that make the province a less-attractive place to do business.