Last week, Ontario Premier Kathleen Wynne announced that her government would see to a $15 minimum wage by 2019, up from its current $11.40. Economic experts Armine Yalnizyan and Dan Kelly debate whether this is good or bad news for Ontario. The following has been edited and condensed:
What do you make of that announcement, in one or two words?
Armine Yalnizyan: Long overdue.
Dan Kelly: Broken promise.
What was the broken promise?
Dan Kelly: In 2014, this government promised to take the politics out of setting minimum wage by announcing a large increase, and then indexing it to inflation. It was a tough swallow for many small firms, but it at least offered a degree of predictability.
Now, a year out from an election, they put the politics back into minimum wages by implementing a giant union wish list of demands. The $15 minimum wage is only one of the incredibly challenging items for small business.
Armine Yalnizyan: I'd be ticked off if I were a business, too. The government should have announced the predictable steps to a $14 or $15 per hour minimum wage back when they raised it (inadequately) to $11.25 plus inflation.
I'd argue, however, that a $15 minimum wage is actually good for business (at least the lion's share of them).
Dan Kelly: I LOVE the argument that a higher minimum wage is good for business. It assumes that small business owners are just too stupid to know what is good for them.
Why is a $15 minimum wage good for business?
Armine Yalnizyan: Why? Because it increases purchasing power for ALL businesses. Consumers, especially in the biggest cities, are being squeezed by stagnant wages and rising housing costs. That means less truly disposable income for actually buying goods and services.
Dan Kelly: Those who argue that raising minimum wage helps business, and that it does not negatively affect employment, need to explain why $15 is the magic number. If higher minimum wages have zero negative consequences, why not hike to $100 per hour? Or do we admit that there is a level at which jobs and hours dry up, workers get replaced by technology and/or price hikes for everything eat up the higher income levels?
Armine Yalnizyan: Here are four pages of arguments on why $15 is about the right level right now. The point is to anchor it to some proportion (ideally 60 per cent) of the average hourly wage. We don't have to get all dramatic about $100 an hour minimum wages, but $11.40 just isn't anywhere near enough to get by, even if you are lucky enough to find a full time job at minimum wage.
Will we see price hikes in Ontario?
Dan Kelly: I've spoken to dozens of business owners who have told me they will have to hike their prices to accommodate the higher wages. Obviously labour isn't their only cost, but costs of almost all input — particularly those under government's control — have been rising fast, too. If prices go up, how are workers any further ahead?
Armine Yalnizyan: You are right that some businesses will pass on the cost through price hikes. Others won't, because they know by keeping prices low they can attract bigger market share and grow their top line.
Dan Kelly: And if they don't hike prices, where does the increased cost come from? The fantasy of those giant profits small business owners are taking home?
Armine Yalnizyan: Don't forget that 50 per cent of the minimum wage workers in Ontario work for big businesses (workplaces with more than 500 employees). Low wages help maximize profit. Period. Some establishments will take a little less in order to increase more sales.
Dan Kelly: Armine, while we can debate the amount, surely you'd agree that an increase in minimum wage will lead to some reduction in employment or hours, right? And that youth and inexperienced workers are most vulnerable when the minimum wage rises?
Armine Yalnizyan: Yes there will be a reduction in some hours, some jobs, some businesses. No argument there. And most vulnerable workers (teenagers and newcomers) will bite the bullet first, particularly when there's a downturn in demand.
But the point is that if almost 30 per cent of workers are making less than $15 an hour right now (the case in Ontario) and you increase their pay, there will be A LOT more spending going on for the businesses that can hang in there.
Dan Kelly: The move to $15 will also mean higher prices for many of those workers armed with their higher wages. Are they really further ahead?
Armine Yalnizyan: You know, we really aren't seeing big price hikes right now (except in housing). Partly that's because of digital technology, which is driving the marginal cost of producing things to zero. Partly it's because there are some really big players in every industrial segment that are really pushing the low-cost game to drive out competitors and gain more market share.
But price hikes just aren't showing up, even in cities and industries where the minimum wage would normally bite the most.
Is the current minimum wage too low?
Dan Kelly: I am certainly not going to be the one to argue that $11 or $12 is anywhere close to enough to support a family. I sure couldn't do it, particularly after moving from Winnipeg to incredibly expensive Toronto. But every small business owner I meet tells me they want to help their employees as much as they can; they try to do their best within the margins of their business.
And here's what I'm told they'll do if the minimum wage goes up to $15 in Ontario: 35 per cent will cut hiring youth/inexperienced workers, 26 per cent will reduce hours, 26 per cent will reduce staff and 22 per cent will delay expansion plans. None of this is good for workers and certainly not good for the economy.
Armine Yalnizyan: You've seen the data too, I imagine, where boosting the pay of minimum wage workers made life EASIER for businesses? Less turnover, meaning less recruitment and lower training costs, and less employee absenteeism. In sum: more productivity.
Dan Kelly: What hasn't been explored is what happens to all those employees earning $15 or slightly above right now. Many of them will expect a 32 per cent pay increase, too.
Also, let's talk about the timing. Even the Alberta NDP phased in the $15 plan over four years. Ontario's hike is 32 per cent over 18 months. The only thing to go up that much that fast in Ontario is energy prices, and we know how that turned out.
Let's say the Liberals win next year's election and make good on their promise of $15 minimum wage. What does Ontario look like in, say, 2021?
Dan Kelly: The effects of the policy will still be fairly fresh. Based on past data, youth unemployment will be up and there will be fewer opportunities for new entrants into the workforce, particularly those with disabilities or language barriers. Retailers and the hospitality industry will find ways to automate more processes and customer service frustrations will be higher.
Export-oriented jobs with more modest wage levels — such as food processing — will shift to other locations, such as the U.S. Prices on food, services and restaurant meals will be considerably higher, which will price many seniors and students out of the market. Unions and governments will then look angrily upon businesses, lecturing them that they are not creating enough jobs for young people or that they are shifting employment outside of Canada.
Armine Yalnizyan: Well, first, the minimum wage is just one of many things that are going to affect the Ontario economy by 2021. Key among these unknowables is what will happen with the economy and consumers' purchasing power south of the border, whether the Ring of Fire gets developed, whether the housing market collapses or continues to balloon in pockets and whether boomers delay retirement in significant numbers.
But let's narrow the focus to the contribution minimum wage rising to $15 by January 2019 could make. This measure, by itself, would mean there are more productive businesses, less job market churn, better paid workers, more spending and possibly some more saving or less debt accumulation among really low-income workers, particularly students. Mind you, all bets are off if we continue to flood in temporary foreign workers for those jobs "Canadians won't do" — often because they are not paid enough. Regardless, I think we need a youth employment strategy, whether or not the minimum wage rises.
Armine Yalnizyan is vice president of the Canadian Association for Business Economics. She helped define the Canadian Centre for Policy Alternatives' Inequality Project from 2006 to 2017.
Dan Kelly is president, CEO and chair of the Canadian Federation of Independent Business (CFIB). He has represented Canada's small businesses at the International Labour Organization in Geneva.
Who won the debate? Comment below.