How Ontario's economy will react to $15 minimum wage
It will put money in the pockets of the lowest-paid workers, but the larger economic impact is less clear
Depending on whom you listen to, the Ontario government's move to jack up the minimum wage by nearly one-third will either be devastating for businesses and kill jobs or give a big boost to the economy as low-paid workers spend more.
These are the polar opposite views coming from business and labour, the usual suspects in the never-ending debate about how much people should be paid.
But the huge body of research into the economic impact of minimum wage hikes does not definitively support either conclusion.
- Kathleen Wynne announces plan to raise minimum wage to $15 by 2019
- Small-business killer or fairness to low-wage workers: Reaction to Ontario's minimum wage hike
"The employment effect of the minimum wage is one of the most studied topics in all of economics," begins a comprehensive report by John Schmitt of the Centre for Economic and Policy Research in Washington, D.C.
Schmitt's paper refers to hundreds of individual studies on minimum wage hikes and takes a detailed look at several meta-studies (which analyze data from multiple research projects). His conclusion: "The minimum wage has little or no discernible effect on the employment prospects of low-wage workers."
The critics of minimum wage hikes will certainly be able to point to individual studies that show a significant negative effect on jobs. But measured against the bulk of the evidence, these studies are either outliers or unscientifically designed.
Schmitt stresses that no one should draw broad conclusions based on a single study when "the cumulative experience of scores of studies" shows minimum wage increases have not proved to be big job-killers.
How is it possible that pushing the minimum wage up doesn't lead to job loss? It turns out that businesses do what they do best: they adapt to the new market forces.
- Ontario PC leader questions 'rapid' plan for $15 minimum wage
- Bar owner urges small businesses not to pay minimum wage increase
Yes, some employers will cut jobs, hours or benefits. Others push prices up, and some absorb the wage hikes with lower profits. Schmitt's review of the research found that the most common ways that businesses adjust are by increasing productivity and reducing employee turnover, something that is a hidden but significant cost to employers.
The research into one particular result of raising the minimum wage is definitive: it puts more money in the pocket of minimum wage workers.
The research on the broader economic impact, however, is inconclusive.
The non-partisan U.S. Congressional Budget Office looked at the effect of boosting the federal minimum wage to $10.10 per hour from the current $7.25 per hour, proportionately a larger increase than Ontario is planning.
Its report concluded that the increase would provide $31 billion more in wages for the lowest-paid workers, but the economic impact would be largely offset by some workers losing their jobs, lower business profits and higher prices.
"Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion," concluded the report. That equals 1/100th of one per cent of U.S. GDP, a drop in the economic bucket.
"Classical economics suggests there's going to be huge job losses, and studies indicate that's not likely to be the case," said Bernie Wolf, economics professor at York University's Schulich School of Business.
"It really depends," said Wolf in an interview Friday with CBC News. "How strong the economy is at the time, how big the increases are, those kinds of things will have an impact."
Ontario's minimum wage is set to rise a total of 32 per cent in a little more than a year and a half:
$11.40: current minimum wage.
$11.60: Oct. 1, 2017.
$14: Jan. 1, 2018.
$15: Jan. 1, 2019.
Critics say it's too much of an increase that happens too quickly. But it is not unprecedented: the U.S. increased the federal minimum wage (which is the floor for the minimum wage in all states) by 41 per cent in just two years (2007 to 2009).
"The higher costs for business are offset by the boost in consumer spending when workers are paid more," said Paul Sonn, senior counsel with the National Employment Law Project, a worker advocacy organization based in New York.
The impact varies among different sectors, said Sonn in an interview with CBC News.
"For the average firm in the economy it's not that big a cost, because most industries only have a relatively small portion of low-wage labour," he said. "Relatively few industries use a lot of low-wage workers, such as restaurants."
Sonn finds it striking that the number of U.S. business owners and executives in favour of minimum wage increases appears to be growing, according to polling.
"There is more support being voiced than ever before for raising the minimum wage, including to the $15 level, by business community voices," he said. "There's a segment of the business community ... that opposes any increase in the minimum wage large or small."