Divisive Minimum Wage Experiment Goes Live in Ontario

  • Ontario plans dramatic 32% pay increase over next 15 months
  • Restaurant owners say wage increase will exceed profit margin

Ontario is about to become a test case for a debate that’s divided economists and politicians for decades: whether a higher minimum wage will really boost living standards for the most vulnerable workers or hurt them by forcing employers to cut jobs.

The government of Canada’s most populous province plans to increase the minimum wage 32 percent to C$15 ($12) an hour by the end of 2018. It’s a swift jump whose impact may be intensified by the fact more than a tenth of its workforce makes the minimum rate, the highest share in the country.

Ontario joins cities such as Seattle and New York in the U.S. seeking to address years of income stagnation and inequality by boosting wages for workers at the bottom of the pay heap. The $15-an-hour push dovetails with Justin Trudeau’s agenda of cutting taxes for the middle class and closing loopholes for the rich.

Big grocers such as Loblaw Cos. and Empire Co. are pushing back, saying the change will cost them hundreds of millions of dollars and may accelerate a move to automations like self-serve checkouts. Restaurant owners argue the new wage bill will more than eat up the industry’s profit margin and could cost jobs. Critics of the move say one big concern is whether everyone else on the payroll demands a big raise to keep pace.

“This is just too fast,” Ken Grondin, chief financial officer at Cara Operations Ltd., said by phone. The company based near Toronto runs some of Canada’s most popular eateries including Harvey’s hamburger chain. “The highest cost risk is if the whole wage scale goes up by the same factor.”

Ontario’s minimum wage rose to C$11.60 as of yesterday, from C$11.40. The government is advancing legislation to move it to C$14 at the beginning of 2018, making it the steepest in Canada and higher than U.S. states such as Michigan, one of its main manufacturing competitors. The next step is to C$15 at end of next year.

New York is also moving quickly to a $15 minimum wage but the phase in will be staggered. Workers at companies with 11 or more staff in New York City will make at least $15 an hour by 2019, up 36 percent from two years earlier while smaller firms will have until 2020 to lift wages to $15.

Morley Gunderson, a University of Toronto professor emeritus, found that a 10 percent minimum wage increase cuts youth employment by at least 3 percent. A jump of more than 30 percent is “huge,” he said.

“I think that’s going to trigger even larger impacts,” he said by phone. “It is at best an exceedingly blunt instrument for dealing with poverty and it may even be harmful,” he said. The hardest hit would be low-skilled workers like high school dropouts who lose their jobs or hours and have a big struggle to find something else, he said.

Job Cuts

The province’s own Financial Accountability Office forecast job losses of 50,000 or 0.7 percent of the total. The higher wage would boost labor income by 1.3 percent by 2019, with just 27 percent of those gains going to low-income households. Toronto-Dominion Bank sees as many as 90,000 jobs lost by the end of the decade from the move and Eric Lascelles, chief economist at RBC Global Asset Management, says higher minimum wages across Canada could boost consumer prices by 0.5 percent over two years.

A survey by industry group Restaurants Canada found that 96 percent of its members were “very likely” to raise prices, 84 percent would cut hours and 57 percent would fire workers, in response to Ontario’s policy, according to results gathered June 22 to July 5.

The higher minimum wage may also put Ontario at a competitive disadvantage to its neighbors including Quebec, New York and Michigan. In Michigan, across the river from one of Ontario’s biggest auto manufacturing hubs in Windsor, the minimum wage will be $9.25 next year or about C$11.54.

“I know this is going to be challenging for business,” Kevin Flynn, the government’s labor minister, said in a phone interview. “I don’t think it’s a roll of the dice, I think it’s a call to action,” he said. “Surely the minimum wage that you’re allowed to pay somebody should give them a basic living.”

One poll suggests the wage issue is a political winner, and not just in Ontario. Forum Research found last year that 65 percent of Ontario respondents approve of a C$15 minimum wage, mirroring the national figure of 63 percent. Alberta is getting C$15 an hour in October of next year, but that’s in a province where just 1.7 percent of workers earn that paycheck. British Columbia’s new government sent its campaign promise for C$15 by 2021 to a committee for study.

Workers need a big pay raise to catch up for a period where their standard of living has lagged, and the economy benefits from their increased purchasing power, says Paul Meinema, president of the United Food and Commercial Workers Canada, with 100,000 members in Ontario. Increasing minimum wages has never caused the economy to buckle, he said.

“Most of these employers who are paying these rates of pay are competing among each other -- retail stores, hotel change, fast food -- their lot in life isn’t going to change,” he said.

It will take several years before clear data comes in that allows researchers to study what happened after the Ontario wage increase.

“The overall evidence from all over, Canada, the U.S. and Europe is mixed,” Gunderson said. “You won’t settle the debate but it will be more credible in some ways-- it will be an opportunity.”

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