Why a $15 Minimum Wage in Ontario Could Hurt the Working Poor

$15 minimum wage

Introducing $15 minimum wage too quickly could lead to job losses.

Ontario is raising its minimum wage to $15 per hour by 2019. Minimum wage is going up from its current $11.40 per hour to $14 on January 1, 2018 and $15 on January 1, 2019. Ontario is following the lead of Alberta, where the NDP announced last year it would boost the minimum wage to $15 by 2018.

On the surface $15 minimum wage looks like a big win for the working poor. For years low-income workers have been fighting for a living wage. Although $15 an hour isn’t enough to afford a home in Toronto, at least it’s enough to hopefully pay the rent and put food on the table.

While I’m all for $15 minimum wage, what I do take issue with is how quickly the Ontario government is increasing minimum wage. Minimum wage will go up by a 31.58 percent in 19 months. That’s a pretty steep increase in a short timeframe.

Small Businesses to be Hit the Hardest

While big businesses may be able to afford it, what about the small mom-and-pop retailers? Many small businesses have razor thin margins. They’ve been fighting for years for lower credit card interchange fees. Now they’re faced with a steep hike in minimum wage. Many will have a tough decision to make: increase prices, lay off workers or close up shop.

Small businesses aren’t the only ones crying afoul. Business groups have conducted their own economic studies (something that the Ontario Liberals failed to do). One study found that increasing minimum wage in the timeframe proposed by the government would put 185,000 jobs at risk.

While business groups are pushing their own agenda and  their studies should be taken with a grain of salt, not giving businesses enough time to prepare for a higher minimum wage is a recipe for disaster. Simply put, this will undoubtedly lead to job loss and force some small businesses to close up shop for good.

The Unintended Consequences of a Higher Minimum Wage

Most businesses don’t have a problem with a higher minimum wage. This would put more money into the pockets of consumers and boost our GDP. Businesses would just like adequate time to prepare and budget for higher wages. Instead introducing a higher minimum wage in such a short time span could result in all sorts of unintended consequences.

While Bill 148 promises more rights for workers, there’s no guarantee they won’t see their hours cut. Many workers who earn minimum wage are part-time employees. A worker who used to get 35 hours a week, could see his hours reduced to 25 or 30 hours a week to make up for a higher minimum wage. While he may earn more per hour by working fewer hours, his overall paycheque in a week won’t go up much, if at all (unless he takes on another job).

That’s not all. To help offset a higher minimum wage, big businesses like grocery chain Metro are accelerating their studies of job automation. Again, isn’t good news for the working poor. This could mean the most vulnerable could be out of a job sooner than anticipated.

While less than 10 percent of the workforce in Ontario earns minimum wage, businesses will be under pressure to raise their wages for other employees. For example, if a worker is earning $11.40 an hour, and another is earning $16 per hour, and minimum wage goes up to $15 per hour, the business owner will feel pressured to raise the wages of the worker earning $16 per hour (not to mention all his other employees). This could result in higher prices for consumers.

Gradually Increasing Minimum Wage Over Several Years, the Best Approach

I consider myself an optimist, but it seems that the Ontario Liberals, who are lagging in the polls, are ramming through a higher minimum wage just in time for the next provincial election in June 2018 to appease voters. It’s nice that the Liberals are holding consultations across the province, but it would have been better if they had done it before announcing the steep increase in minimum wage instead of after.

A more sensible approach would be to slowly increase the minimum wage. Ontario should borrow a page from the playbook of B.C. or Seattle, who are gradually increasing minimum wage over several years. This would be a win-win situation: the working poor would get a decent living wage and businesses would have enough time to plan for higher wages.

While the Liberals are unlikely to do an about-face, hopefully they’re listening to concerns of businesses, otherwise Bill 148 could hurt instead of help the working poor in the short- and long-term.

Sean Cooper is the author of the new book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available at Amazon, Indigo and major bookstores.