In Ontario, the left and the right are sparring over minimum wage increases

The right-leaning Fraser Institute is the latest think tank to weigh-in on Ontario’s minimum wage debate, which has been raging since Premier Kathleen Wynne announced the province would be raising minimum wage to $15 per hour by 2019 — up from the present $11.40 per hour.

“Raising Ontario’s minimum wage to $15 an hour will lead to job losses across the province for young and low-skilled workers,” the Fraser Institute said in a report released on Tuesday. The increase is too much, too fast, conservative economists say, heightening the probability of “substantial adverse employment effects.”

Not true, say economists at the left-leaning Canadian Centre for Policy Alternatives. There’s actually no consistent evidence that increasing the minimum wage by a few dollars will lead to job losses, they say. “The broad consensus is that any kind of potential decrease in job growth will be offset by income gains,” says CCPA economist Sheila Block.

So who’s right? Is Wynne’s policy misguided, and bad for both workers and businesses? Or does raising the minimum wage result in real and tangible benefits to the economy?

What the Right says: Higher wages = fewer jobs

On the one hand, if you follow simple economic logic, raising the minimum wage will mean companies incur higher labour costs. They will try to lower these costs either by getting rid of workers, or by raising prices — the latter is a tough sell because of market competition, so most business owners will opt for the former option: cutting jobs.

A report by the Financial Accountability Office of Ontario, an independent adviser to the government, estimates that the proposed minimum wage hike will lead about 50,000 lost jobs across the province, concentrated mostly among teens and young adults.

“It’s a poor tool to achieve its main objective of poverty reduction,” Dan Kelly, CEO of the Canadian Federation of Independent Businesses told VICE Money of the planned wage increase. “I’ve spoken to business owners about this: 35 per cent will cut the hiring of youth or 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.”

Past experiences, however, offer scant evidence tying minimum wage increases to significant job losses. Take Seattle as an example. It’s a city similar to Toronto in terms of what drives its economy — the service sector. In 2014, Seattle voted to gradually raise its minimum wage to $15 an hour, in $2 increments each year. Seattle’s unemployment rate this summer was 2.6 percent — the lowest it has been in the past nine years. In fact, because of Seattle’s robust economic growth since 2010, employment in the city’s restaurant sector — a solid measure of minimum wage changes — has soared.

A 2014 study by the Canadian Centre for Policy Alternatives analysed the relationship between minimum wages and employment in ten Canadian provinces between 1983 and 2012. It found no real empirical connection between higher minimum wages and lower employment. Employment levels during that 30 year period seemed to be determined by larger economic factors – such as consumer spending and GDP growth. They were not particularly sensitive to wage regulations.

Fear of disemployment effects, wrote the authors, are overblown by those with a vested interest in keeping wages down.

What the Left says: Higher wages = higher spending = job creation

Let’s return for a second to that figure of 50,000 lost jobs projected by the Financial Accountability Office. It sounds like a big number, but it represents 0.7 percent of total employment in the province. Secondly, as the same report notes, “a higher minimum wage would also raise income and increase consumer spending, leading to job creation.”

“If almost 30 percent of workers are making less than $15 an hour right now, and you increase their pay, there will be a lot more spending going on for businesses that can hang in there,” left-leaning economist Armine Yalnizyan told the CBC recently. This point is partially backed by the FAO report — it predicts the number of minimum wage jobs will rise from 520,000 to 1,610,000 by January 2019.

The magic threshold

The reality of an economy is there are a whole bunch of factors that can affect employment. Higher labour costs can cause job losses — the exodus of manufacturing jobs from North America to Asia is a prime example of this. But minimum wage hikes in wealthy countries are marginal when compared to the broader salary differences between workers in Vietnam and Wisconsin, for example.

Some economists have calculated a “threshold” at which minimum wage increases will start impacting employment. “If your minimum wage is 50 percent of the average wage, you’ll start seeing some decrease in employment,” says Craig Alexander, Chief Economist at the Conference Board of Canada, a business lobby group.

The average wage in Ontario (the hourly wages of all employees divided by the number of employees) currently stands at $26.13 an hour. Following Alexander’s theory, a minimum wage above $13 an hour will result in some job losses, but he says that might not be the best way to look at the issue.

“I think the debate should be about whether the costs of raising the minimum wage are worth the benefits. Because it’s essentially a trade-off,” Alexander told VICE Money. “We know that we will see some job losses, it’s just a matter of determining if these losses are going to offset by gains because people will be earning more.”

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