Lost jobs, cut hours, no paid breaks. Do minimum wage hikes hurt workers?
It’s been barely a week since Ontario’s new $14-an-hour minimum wage came into effect, but the headlines are already rolling in about employers hiking prices and eliminating paid breaks to offset increased costs.
Canada’s Twitter is incensed over reports that the Tim Hortons locations owned by the children of the co-founders of the franchise say they have reduced employee benefits and cut back paid breaks to help offset Ontario’s $2.40 jump in hourly minimum wage.
And a multitude of studies are predicting tens of thousands of job losses after Ontario, Alberta and other provinces lift their pay floors.
Most recently, the Bank of Canada pegged the cost of various planned minimum wage increases across the country at 60,000 jobs, though it indicated the number could be as high as 140,000.
Is raising the minimum wage a self-defeating game then?
WATCH: Tim Horton’s location trims worker benefits citing minimum wage increase
A lot depends on how high the minimum wage is compared to the average wage
“I am a proponent of having minimum wages that are as high as possible,” said Pierre Fortin, one of Canada’s leading scholars on the subject and professor emeritus of economics at the University of Quebec at Montreal.
Too high a minimum wage will hurt low-income workers rather than help them as employers drastically cut hours and jobs and slow the rate at which they create new positions. The trick is to assess how high to set the bar so that the costs don’t outweigh the benefits, Fortin said.
Economists don’t have a clear answer on how high is too high for the minimum wage, but so far the evidence suggests that threshold might be somewhere between 45 per cent and 50 per cent of the local average wage, Fortin said.
When Quebec adopted a minimum wage that was around 55 per cent to 60 per cent of the provincial average wage in the 1970s, the province saw “an explosion of unemployment” among young people and women, Fortin said.
On the other hand, modest increases in the federal minimum wage in the U.S. since the 1980s have seen negligible impacts on joblessness, according to most studies. That’s likely because, even after the hikes, the pay floor remained below 40 per cent of the average wage, Fortin said.
“There is very little impact on jobs because the minimum wage is so low that very few people actually earn the minimum wage,” Fortin said.
The issue here in Canada is that calls for a living wage of $15 would raise the base pay above 50 per cent of average wages in many places.
In Ontario, which plans to reach $15 an hour in 2019, the average hourly pay was less than $24 in 2016, according to Statistics Canada.
Alberta, where the average pay was close to $27, may be in a better position to absorb the increase but would also face a minimum wage that’s over half of the average wage, Fortin said.
It’s a different story in Seattle and San Francisco, which have both adopted a US$15-an-hour minimum wage. There the average hourly pay is US$30 and US$35 respectively, so US$15 an hour doesn’t seem “terribly high,” Fortin said.
When the minimum wage rises, it’s usually most teens who lose their job. But what if the raise is very high?
Job losses tied to minimum wage hikes tend to hit younger workers disproportionately, several studies have shown. That’s because it’s mostly teenagers who earn exactly the minimum wage, with older adults in low-paying jobs usually taking home a few dollars more. It’s also because employers chose to let go of the employees with the least experience, which often means the youngest ones.
That’s what research by Ontario’s Financial Accountability Office (FAO) predicts will happen, too. Right now, around 60 per cent of those working for the minimum wage in the province are teens and adults under the age of 25, FAO said in a recent assessment of planned pay hikes. With a $15 hourly pay floor, though, those aged 25 and older would make up the majority of the minimum-wage workforce, implying that younger workers might face a dearth of job opportunities.
That might be a small price to pay if it means depriving middle-class teens of a chance to earn extra spending money.
But Fortin noted that while very young workers will likely be affected the most, Canadians of every age group with pay close to the new minimum wage will face some job losses.
Indeed, previous modest increases to the minimum wage have been shown to mostly hit teenagers in the past, with little or no effect on the impact of older workers, UBC economist David Green noted in a 2015 report for the Canadian Centre for Policy Alternatives.
With an increase to $15 an hour, though, “we can’t necessarily assume that earlier estimates for workers over age 25, which show essentially zero minimum wage employment effects, will hold,” Green wrote.
WATCH: Minimum wage workers in Nova Scotia paid less than anywhere else in Canada
A high minimum wage is a bigger help for low-income Canadians who keep their jobs
A high minimum wage may mean more job losses among older workers but would likely be a bigger help for low-income families that do hold on to their jobs.
“An increase to $15 would primarily affect non-teenagers and is therefore likely to have a greater impact on working poverty,” Green wrote.
The FAO report found that 27 per cent of the income gains from the minimum wage increase in Ontario would go to households below the low-income threshold and over 60 per cent to those with incomes below the median.
And “raising the minimum wage will benefit many individuals in low income and narrow the gap between a so-called ‘living wage’ and the prevailing wage,” according to a recent report by TD Economics.
WATCH: Alberta economist claims 25K jobs could be lost due to provincial minimum wage hike
There are ways to minimize job losses while keeping the minimum wage high
Any hike in the minimum wage is likely to trigger at least some job losses. But economists say there are things governments can do to lessen the pain, even when adopting rather generous pay floors.
For one, raising the minimum wage gradually gives businesses more time to adjust, according to the TD report, which calls on Ontario to extend its implementation period to 2021 at least.
Localized minimum wage thresholds might also make sense, Fortin said — a conclusion echoed by TD economists.
“Ontario could consider the model used in a number of U.S. states that allows minimum wages to be established at the city level. For example, in Toronto region, a minimum wage of $15 would maintain a ratio relative to average income in the 50-60% range. However, in Windsor, a $11-$12 level would be more appropriate,” the TD report states.
Legislators can also grant employers payroll tax breaks that will lessen the cost of higher wages for low-income workers, Fortin said. That may also help make bold minimum wage hikes “politically more palatable to business.”