The Government of Ontario’s plan to hike the minimum wage to $15/hour could come at a major price, according to the province’s Financial Accountability Office (FAO). In a recent report, the independent watchdog said the higher minimum wage would increase payroll costs and put pressure on businesses to reduce their number of employees; the FAO suggests 50,000 jobs could be cut in the province as a result.
“In response to higher payroll costs, some businesses will attempt to reduce expenses by substituting minimum wage employees for higher paid, more productive workers or by increasing automation. This would lead to some job losses for minimum-wage workers,” said the report.
The watchdog said teens and young adults would be hit the hardest, and a hike in the minimum wage would not help Ontario’s low-income families. The FAO estimates just 27 per cent of the total gain in income would go to the province’s poorest, with most of the gains going to families who are already above the poverty line.
“The income gains from Ontario’s proposed minimum wage increase would be relatively broadly distributed across all households and not concentrated on low-income families. Since minimum wages target low-wage workers, but not necessarily low-income families, raising the minimum wage would be an inefficient policy tool for reducing overall poverty,” said the FAO.
“Low wages are bad for the economy”
The provincial government is disputing the FAO’s claim that the minimum wage hike would cause substantial job losses. It’s insisting the hike would go a long way in boosting the quality of life for low-income earners.
“Our economy created more than 30,000 jobs last month and the unemployment rate is sitting at 5.7 per cent, the lowest level in more than a decade… People in Ontario support the notion that you work 35 or 40 hours a week…you deserve to be able to pay rent, to buy food, put shoes on your kids’ feet,” said Labour Minister Kevin Flynn, adding that other economists are disputing the projected job losses as well.
Meanwhile, the FAO does concede that higher wages will lead to some increased consumer spending, and will offset some of the job losses it sees in the province’s future.
Agriculture and retail industries, smaller businesses to face more challenges
When it comes to job losses, the FAO says some industries would be hit much harder than others. Those that both rely on minimum wage workers and face highly competitive business environments have the biggest challenge ahead of them.
“Businesses in the agriculture and retail trade sectors could face difficulty increasing prices due to competition from international imports and online retailers. In addition, smaller employers may have less flexibility than larger businesses to cut costs,” the report said.
The Canadian Federation of Independent Business is alarmed by the findings. It’s encouraging the provincial government to put a hold on the wage increase.
“[The report] reinforces the need for the Ontario government to halt its reckless $15 minimum wage plan and conduct an economic impact analysis and fulsome consultations before taking any further steps,” the CFIB’s Julie Kwiecinski told The Star.
“We encourage the Ontario government to step back and take the time to find a solution that actually addresses the problem, without putting 50,000 Ontarians’ jobs at risk, predominantly those of teens, young adults, and new immigrants,” she said.
No sign of turning back
Despite the report and objections to the plan, the Ontario government has given no indication that it will go back on its promise to raise the minimum wage. Right now, the minimum wage sits at $11.40/hour, and the Province is proposing an increase to $14 on January 1, 2018, and then to $15 the following year.
And though the government appears confident Ontario’s economy can weather the increase, the FAO is cautioning the sudden rise in labour costs could lead to even more job losses than it’s currently projecting.