Minimum wage boost: life-changing or chaotic for Ontario?

Will Ontario’s proposed minimum wage hike help or hurt the economy and low-wage workers? A political science researcher at the University of Ontario Institute of Technology suggests our society is better off economically when we increase the spending power of poorer people.

Last week the Ontario government concluded its nearly two-week-long series of public consultations on Bill 148, proposed legislation that would, among other things, raise the minimum wage from the current $11.40 per hour to $11.60 in October, $14 on January 1, 2018 and then $15 by the beginning of 2019.

There’s a lot of discussion surrounding the ultimate outcome of the legislation. Some advocacy groups have voiced concerns that businesses will not be able to sustain the wage hike at the proposed pace of implementation. Meanwhile, union groups like Unifor and the Ontario Federation of Labour and Fight for $15 and Fairness want the bill go to further in its protection of workers.

According to Timothy MacNeill, PhD, Senior Lecturer, Faculty of Social Science and Humanities, raising the minimum wage can have a number of overall positive outcomes:

Boost to economic growth:

“A wage increase is one of the better ways to spur the economy—and economic theory and evidence gathered in past studies is pretty clear on this,” says Dr. MacNeill. “When wealthy people get more money, they tend to either save it or spend a larger proportion on things like expensive imported goods and international travel. That means some money leaves the economy, stunting economic performance. But when poorer people get more money, they tend to spend it on their immediate needs and within their neighbourhoods. Much less money leaks out of the local economy.”

Overall, countries with higher minimum wages tend to have better economies. “There may be a two-way causality for this, since richer countries are more likely to pay higher minimum wages,” says Dr. MacNeill. “But most countries with very low incomes and high inequality have very low performing economies at the macro level.”

No trend of job loss or closure of small business:

Dr. MacNeill cites a recent University of California (UC) Berkeley study that found the first phase of Seattle, Washington’s minimum wage hike (slated to reach $15 by 2021) had negligible employment effects on the restaurant industry. Another UC Berkeley study from November 2016 investigated the extent to which businesses in San Jose, California increased their prices to adjust to higher payroll costs associated with local minimum wage increases. “Restaurants were able to make up for higher hourly wages through very small increases in menu prices,” Dr. MacNeill notes.

Increase in earnings for low-paid workers:

Critics claim increasing the minimum wage could in fact decrease overall earnings of low-wage workers by forcing employers to cut workers’ hours. At first glance, a recent University of Washington study on Seattle’s minimum wage increase seems to support this conclusion. “However, this study has been criticized for its methodology,” Dr. MacNeill points out.

“On the other hand, the Obama administration funded a much larger study of 18 states plus Washington, D.C., which had all experienced minimum wage increases; the study found that overall earnings for poorer workers increased in all cases,” he says.

“In general, the evidence suggests that business continues as usual, but workers get a little more money. This additional money spurs the local economy at least enough to offset potential job losses, but sometimes enough to yield a net gain in both jobs and economic growth.”

To schedule a media interview with Dr. MacNeill, contact communications@uoit.ca.