Commentary

Minimum Wage Increase a Modest But Welcome Policy Change

Don't let the naysayers and dogmatic opponents of fair labour policy bury this opportunity in fearmongering and overly simplistic claims about "basic economics" or "common sense".

By Ryan McGreal
Published May 31, 2017

This article has been updated.

The current general minimum wage in Ontario is $11.40 an hour. For a full-time worker, that results in a gross income of $456 a week or $23,712 a year. That is simply not enough to live on. A family of four with two adults working full-time at the minimum wage will live in poverty, unable to cover essential monthly expenses of housing, food and transportation.

Yesterday, the Ontario Government announced a plan to increase the minimum wage in phases to $15.00 an hour by January 1, 2019 as part of a broader suite of changes to employment law that will also introduce mandatory sick days for all employees, equal pay for part-time and full-time workers and other changes.

For a full-time worker, $15.00 an hour works out to a gross income of $600 a week and $31,200 a year - almost $7,500 more than a full-time annual income at today's minimum wage.

Ontario Living Wage Network has compiled a table of living wage by community across the province:

Living Wage by Region
Community Living Wage
Brantford $14.85
Chatham-Kent $15.86
Grey Bruce/Owen Sound $16.76
Guelph $16.50
Hamilton $15.85
Kingston $16.58
London $15.53
Muskoka County $15.84
Peterborough $17.65
Region of Niagara $17.47
Toronto $18.52
Sudbury $16.18
Perth and Huron $16.47
St. Thomas Elgin $16.03
Durham Region $17.00
Waterloo Region $15.42
Halton $17.95

Compared to the current living wage, the planned increase to $15 an hour in 2019 is actually a modest increase. Nevertheless, we can expect a lot of fearmongering about all the terrible things that will happen as a result - layoffs, closed businesses, runaway inflation, and so on.

Don't believe it. The evidence abundantly contradicts those claims.

The claim that employers will be forced to lay off workers has been carefully studied by labour economists who have found little evidence that minimum wage increases lead to significant job losses. In fact, the research unequivocally shows that the benefits to low-wage workers and their families far outweigh the costs.

A more holistic study of the system of employment, wages and economic growth reveals dynamics that seem counter-intuitive at first blush.

Simplistic models of free exchange miss the fact that employers and workers are asymmetric agents in in monopsonistic unskilled and semi-skilled labour markets. That is, employers have lots of power to drive down wages, since a corporation is a formal combination of thousands of shareholders pitted against separate and individual workers.

As a result, employers can pay workers less than a market with perfect competition would produce. In fact, that is exactly what has been happening since the 1970s, when the neoliberal offensive against labour power began in earnest.

From 1945 to 1975, real (inflation-adjusted) wages closely tracked productivity gains - as productivity went up, real income went up as well. Starting in the 1970s, that correlation fell apart. Productivity has continued to increase at around the same rate, but real wages have stagnated.

As a result, economic growth has slowed while corporate profits and executive compensation have exploded. The incomes of the wealthiest have continued to increase while the incomes of middle and upper middle earners have stagnated and the incomes of the lowest earners have fallen.

Raising the minimum wage establishes a price floor for labour that allows employers to be profitable but leaves more money in the hands of workers. This, in turn, leads to more consumer purchases, which provides more revenue for employers to offset their higher labour costs (something Henry Ford understood a century ago).

In addition, paying low-income employees a higher wage increases their average productivity and reduces turnover, which means business owners enjoy more labour value in exchange for higher wage costs.

A higher minimum wage also incentivizes people on social assistance to enter the labour market, which may increase employment, economic activity, and consumer purchasing power while alleviating public spending on social assistance.

Overall, raising the minimum wage appears to have a neutral or slightly positive effect on the total employment rate and a small positive impact on GDP growth. Raising the minimum wage will also reduce income inequality and reduce the number of people living in poverty.

Don't let the naysayers and dogmatic opponents of fair labour policy bury this opportunity in fearmongering and overly simplistic claims about "basic economics" or "common sense".

The Ontario economy is a large, complex system with a lot of factors that interact ecologically. A higher minimum wage is just one of those many factors, and it produces a number of positive effects - like stronger aggregate consumer purchasing power - that more than offset the slight increase to the operating cost of those businesses that pay only the minimum wage.

This is absolutely the right thing to do. The benefits - not only to the people who will be most directly affected by a higher minimum wage but also to the economy as a whole - overwhelmingly outweigh the costs and risks.


Update: this article originally stated that the current minimum wage is $10.70 an hour. That is the current student minimum wage. The general minimum wage is $11.40 an hour. RTH regrets the error. You can jump to the changed paragraph.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By kevlahan (registered) | Posted May 31, 2017 at 09:07:45

Many years ago when I worked part time at a (CUPE unionized job) my pay included 10% "in lieu of benefits" to account for the fact that part time workers didn't get any benefits (vacation, health benefits etc).

When the legislation mandates "equal pay for part-time and full-time workers" does that mean employers must include an "in lieu of benefits" payment, or, to the contrary, does it mean that they cannot (since then part time workers would be paid more)?

In other words, how are the differences in benefits between part time and full time workers considered? Are benefits counted towards wages?

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By MikeBelmore (registered) | Posted May 31, 2017 at 18:10:10 in reply to Comment 121540

We'll have to wait to see the legislation, as the devil is in the details on these things, but In their final report, Mitchell and Murray said "However, for several reasons, such as possible unintended consequences for full-time employees and significant costs to employers, we do not recommend extending the principle to the treatment of benefits and pensions. Instead, we recommend that the government initiate an urgent study as to how, at least a minimum standard of insured health benefits can be provided across workplaces, especially to those full-time and part-time employees without coverage, the self-employed and including small employers."

changing-workplaces-review-summary-report?_ga=2.57684335.479630101.1496271965-1296768044.1495548519

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By SSnowling (registered) | Posted May 31, 2017 at 11:08:22

Overall, raising the minimum wage appears not to have a neutral or slightly positive affect on the total employment rate and a small positive impact on GDP growth.

Is "not" in this sentence possibly a typo?

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By Ryan (registered) - website | Posted May 31, 2017 at 14:02:28 in reply to Comment 121541

Good catch - it is a typo. An earlier draft read, "...appears not to have a negative effect" and when I changed the latter from "a negative effect" to "a neutral or slightly positive effect" I forgot to eliminate the "not".

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By Esther (registered) | Posted May 31, 2017 at 15:20:37

Thanks for the article! Can you point me to somewhere where I can read more about the research mentioned here?:

The claim that employers will be forced to lay off workers has been carefully studied by labour economists who have found little evidence that minimum wage increases lead to significant job losses. In fact, the research unequivocally shows that the benefits to low-wage workers and their families far outweigh the costs.

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By MikeBelmore (registered) | Posted May 31, 2017 at 18:03:30 in reply to Comment 121543

Also, see this excellent piece by the CCPA https://www.policyalternatives.ca/public...

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By MikeBelmore (registered) | Posted May 31, 2017 at 17:58:12 in reply to Comment 121543

Here's a strong meta-analysis http://www.nelp.org/publication/raise-wa...

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