The Ontario government has introduced legislation which, if passed, will raise the minimum wage from $14.35 to $15.00 per hour on January 1, 2022. Many Ontarians are enamored to see that minimum wage workers will receive a well-deserved raise, especially considering the negative impacts of Covid-19.
The pandemic has led workers to advocate for higher wages so that they can simply keep up with the increased living expenses in Ontario. Increasing minimum wage to $15.00 per hour will increase the yearly income of nearly 360,000 Ontarians by $1,350. While the livable minimum wage in Toronto is $22.00 per hour, many aspects still need to be considered before raising the minimum wage.
In the Greater Toronto Area (GTA), living costs have sky-rocketed due to increases in rent and property values. In 2020, the real estate market in Toronto set records that continue growing at a rate higher than anywhere else in the world. This, on top of higher gas prices and groceries, has led to a desperate plea for help from workers who make minimum wage.
However, hiking the minimum wage to $22.00 in areas like Toronto would have immediate effects on our economy. Large wage increases can drastically change the labour market in Canada—this is the principal concern of raising the minimum wage.
When companies have to pay more for labour to preserve their expected revenue, they are forced to reconsider their human capital needs. Human capital refers to the knowledge and skills held by an individual. Employers may opt to invest more in technology, which then replaces labour and increases unemployment. For example, if a restaurant must pay its employees more and can’t sustain its business, this may cause them to go out of business—and the jobs that those restaurants contribute to the economy disappear.
Across North America, increasing minimum wages has been met with mixed results. In Seattle, policymakers made headlines when they increased the minimum wage to $15.00 per hour. Contrary to predictions made by some conservative economists, unemployment rates stayed the same. However, in other less technology-reliant areas of the U.S., increased minimum wage led to job cuts in manufacturing industries. In Ontario, our economy is incredibly diverse and many believe that it is well prepared to handle a large minimum wage increase.
While increasing the minimum wage seems promising, many industries are concerned about inflation. Here’s a simple example that puts inflation into perspective: pretend a loaf of bread costs $2.50 before the minimum wage increases. As the cost to produce the bread rises, both factories and stores must raise the price to $2.75. Economic inflation occurs when raises in price happen to a wide range of products across different sectors, which results in a more expensive cost of living.
Now, if your income goes up proportionally, then inflation won’t matter as you would have more money to pay for that loaf of bread. As David Price, an Economics professor at the University of Toronto Mississauga puts it, “if the price of everything has gone up by 10 per cent, and your wages have gone up by 10 per cent, you can still buy the same amount of stuff.” In other words, your wage needs to keep up with increasing prices. “When inflation gets really high, it can really hurt everyone,” he continues.
However, the minimum wage increase does not affect all aspects of our society. Professor Price explains that imported goods such as apparel, footwear, or appliances are not affected as much by a rise in minimum wage. This is because the cost of production in another country does not rise. For example, the production cost of an avocado grown in South America would not change drastically, but the cost of Canadian maple syrup will. The store that sells the avocado will increase the price slightly to pay higher wages to its employees. On the other hand, the cost of the maple syrup will rise drastically as it was produced here.
In addition, Professor Price states that tuition fees won’t change as instructors are not paid minimum wage. However, the cost of our cafeteria, residence, and maintenance services might change because minimum wage workers are employed in these areas. So, who is most impacted by inflation?
The answer is senior citizens. Those who saved up for their retirement would see the value of their savings depreciate as inflation rises. “If [seniors] have a lot of money saved, and then suddenly there’s a lot of inflation, they’ve essentially lost a lot of money,” explains professor Price.
No matter what side of the debate you are on, it is widely agreed that the minimum wage should scale with inflation. “Whatever you think the optimal minimum wage is, you want that to keep track with inflation,” adds professor Price.
While the raise to $15.00 per hour doesn’t match the livable minimum wage in areas like the GTA, the increase is still a step in the right direction. Whether that means sustaining gradual increases or moving the minimum wage up to the current cost of living, the debate over minimum wage is sure to ignite further conversation in Ontario.