Ontario’s 10-cent hike in the minimum wage is bad for workers, bad for businesses and bad for the economy

This column by Armine Yalnizyan was originally published by the Toronto Star on Wednesday October 6, 2021. Armine is a Contributing Columnist to Toronto Star Business featured bi-weekly.

Last Friday, the minimum wage went up by one thin dime in Ontario. Is that enough? The answer is a resounding “no.”

Such a small raise won’t address the purported labour shortage in the province. In fact, despite widespread calls to meaningfully hike wages for often low-paid front-line workers since the pandemic hit, the minimum wage has lost ground to average wage growth in the province.

“Regular” minimum wage workers now get $14.35 an hour, students (essentially anyone under 18, even if they are full-time workers) get $13.50 and servers get $12.55.

There are other categories of minimum wage workers, and people who get paid in cash or have hours of work undercounted can get paid less than the minimum wage. So can many gig workers, who are not deemed employees so are not covered by minimum employment standards legislation.

The minimum wage matters to hundreds of thousands of households in Ontario because 16 per cent of employees, or almost a million people, worked at the minimum wage before the pandemic hit. That was the highest proportion of any province, and doesn’t include gig workers and the self-employed.

Long a jurisdiction reliant on low-paid work, Ontario’s history of minimum wage levels is erratic, to say the least. We’ve gone for years without an increase and seen big jumps in other years.

From 2007 to 2010, the minimum wage rose by 75 cents a year in Ontario. Then — sound of screeching brakes — there were no increases until 2014, after which the minimum wage went up by only a few cents every year until 2017. But in 2018, it jumped from $11.60 to $14, a social experiment if ever there was one given the prevailing narrative that raising minimum wages kills jobs. (Narrator: it did not.) Unless other wages also rise, the higher the minimum wage the more people work at that level.

So how did the government of Ontario come to settle on 10 cents as the right adjustment for this year, notable for all the yelling about labour shortages?

Increases are supposed to be based on changes in the cost of living, the shorthand for which is Canada’s Consumer Price Index.

The CPI rose by 0.7 per cent in 2020, the lowest rate of price increase since 2009, in the midst of the global financial crisis. For a few months in 2020, prices actually fell, as they did in 2009. There have only been a few times historically that prices deflated on an annual average basis, based on a Statistics Canada analysis of 100 years of inflation. But we may be entering a period where CPI goes negative more often, due to population aging, technology and other factors that slow growth down.

Adjusting minimum wage based on CPI alone doesn’t make sense. It assumes we are already at the right level and just need to adjust for inflation. But what is the right level?

We need a conceptual anchor for what level the minimum wage should be; one that makes sense in good times and bad, and is not prone to lobbying and government fiddling about who deserves what.

May I introduce you to the average wage. All workers, from lowly part-timers to highfalutin’ corporate titans, are involved in bringing you the goods and services you consume. The least paid are always in some kind of relation to the entire cost of the effort to make the wheels of the economy go round. That’s the average wage.

In Europe, minimum wages are targeted to fall between 55 and 60 per cent of the average wage.

In 2018, Ontario’s minimum wage hit 51 per cent of average wages. But by 2020, when many essential but low-paid workers were declared heroes, the minimum wage was 49 per cent of average wages.

If we were paying 60 per cent of the average wage, the minimum wage in Ontario would be $15.70 today, not $14.35. The federal government’s recent commitment to a $15 minimum wage would be $16.20.

Some minimum wage workers work full-time and full year, but most work part-time. At 20 hours a week, a typical minimum wage worker would be earning $29 more a week if the minimum wage was 60 per cent of the average wage. Instead, on Friday, the government of Ontario legislated $2 more a week for them.

That’s bad for workers, bad for businesses and bad for the economy.

Evidence over the past decade has shown that raising the minimum wage is good for business. I’ve said it before and I’ll say it again: it isn’t business that creates jobs. It’s customers. We could boost the economy from the bottom up if we raised the roof about the benefits of raising the wage floor.

Photo Credit: Nick Nozak