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Minimum Wage Increase: Good For The Economy But Bad For Business?

Aug. 9, 2013
3 mins
A senior uses their smartphone to pay on the point of sale terminal

You probably haven’t been paid minimum wage since you were in high school, but would it surprise you to hear that millions of Canadians are forced to survive on the lowest wage each day? In fact, for one in 10 Canadians, minimum wage is a grim reality - the most vulnerable Canadians, including immigrants and underemployed youth, are forced to survive on minimum wage. The Liberal government in Ontario has set up an advisory panel to examine the best way to calculate future minimum wage increases.

The Changing Labour Force

With tough economic times upon us, employers have been shedding traditional higher-paying jobs in the manufacturing sector. Where do these workers end up? Would it surprise you to hear that service sector employers like Walmart and Tim Hortons are picking up the slack? With a pre-tax annual income of $20,500, it’s tough to raise a family, especially in major cities like Toronto, Calgary, and Vancouver.

Although the minimum wage has been frozen for the past three years in Ontario, the Liberals have done a decent job of increasing the lowest wage. For nine years, from 1995 to 2004, the minimum wage was frozen at $6.85. From 2004 onwards when the Liberals took power, the minimum wage has increased steadily from $6.85 to $10.25, an increase of 50%. If it wasn’t for the market crash of 2008, we would have probably seen further increases to the minimum wage.

The Benefits Of A Higher Wage For All

Anti-poverty groups argue that the government should continue to increase minimum wage despite sluggish growth because it will benefit the entire economy. Increasing the lowest wage would put more money in the pockets of the working poor. Currently, Canada’s most vulnerable workers have less purchasing power, as their wages remain frozen amid price inflation. An increase in disposable income for this group would in turn increase spending, giving the economy a much-needed boost. For youth in high school and university who are forced to accept minimum wage as a way to fund their education, it would help them pay off their student debt that much sooner and become contributing members of society.

Why The Wage Remains Frozen

Employers say they simply can’t afford higher wages, especially in the aftermath of the worst recession since the Great Depression. If the minimum wage is increased, they will have no choice but to pass on the cost to consumers in the form of price increases. In sectors like retail where part-time workers are the majority, it would mean increased responsibilities and fewer hours. While larger corporations like Walmart may be able to absorb an increase in the minimum wage, it will be especially tough for small businesses. It could mean less hours or even layoffs.

Coming Up With a Solution

Although the advisory panel hasn’t released its findings, it doesn’t hurt to speculate on the outcome. In tough economic times, employers are looking for cost certainty. A trend has been for employers to switch from defined benefit to defined contribution pensions, where the risk is shifted from the employer to the employee.

Instead of ad hoc increases in the minimum wage based on the current government’s agenda, employers need some way to plan and adjust. By hiking minimum wage based on the Consumer Price Index (CPI), similar to governments like Canada Pension Plan and Old Age Security, not only would it help the working poor, but it would allow employers to budget for the future.  

Sean Cooper

Sean Cooper is the author of the new book, Burn Your Mortgage. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Financial Journalist, Speaker and Money Coach, his articles and blogs have been featured in publications such as The Toronto Star, Globe and Mail, Financial Post, Tangerine: Forward Thinking blog and TheDot. You can follow him on Twitter @SeanCooperWrite.

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