Raising Minimum Wage in Ontario: Negative Impact

Is raising the minimum wage the right move?

Ontario is the second province to move from $11.40 per hour towards a minimum wage of $15.00 per hour. According to News Ontario, “By October 2017, the general minimum wage will have increased by almost 70 per cent since 2004, when it stood at $6.85 and the minimum wage remained frozen between 1996 and 2003. This will be the 11th minimum wage increase since 2004” (Ministry of Labour, 2017). Although some think raising the minimum wage will increase employment and decrease poverty, I believe it will have the reverse effect as raising the minimum wage will have a negative impact on society. It will financially damage small and large businesses, increase unemployment and is the wrong approach in the effort to decrease poverty.

Increasing the minimum wage will financially damage businesses, both large and small. For businesses to adapt to this new wage hike, owners will have to pay out more money to their employees. Restaurants Canada says this wage hike will cost an additional $47,000 per year, which would wipe out the profit margin of the average restaurant in the province (Nasser, 2017). Business owners will also have to raise the prices of their products in order to accommodate the additional wages. This will cause business profits to decrease as most customers might not be able to afford to pay the increased price of products in the store. In addition to raising minimum wage, all wages must also increase as experienced workers become more valuable. For example, it is unfair for an Assistant Manager who has been working their way up the chain at McDonald’s for a few years, and who is earning $14.00 per hour, have an inexperienced worker just starting out, earning $15.00 per hour. That is not going to sit well with longer-term employees and it should not. They will look at their value as being seventy-five percent premium over a new hire and will expect an increase in their own pay (Griffiths, 2017). The wage hike will also result in job losses as the small business owners are forced to cut back hours from their employees as well as cut jobs so they can afford to stay in business.

Raising the minimum wage in Ontario will also result in major job losses for many employees’ due to small business cut backs and layoffs. To cope with the wage increase, it is estimated that 97% of restaurant business will reduce labour hours and 81% will lay off staff. (Staff, 2017) In addition to laying people off, some businesses are leaning towards the idea of using labor-saving technology. Instead of having to hire more workers, many companies will invest in machines that offer automated choices such as self-checkouts and self-serving kiosks that do not need to be run by paid employees. This change may be beneficial for the owners of companies; however, it is not beneficial for someone trying to find a job to support themselves and their family. Canadian evidence suggests that a 10% increase in the minimum wage is likely to reduce the employment of teens by 3% to 6%, and slightly lower for young adults. This implies that a 25% increase in the minimum wage could lead to a 7.5% to 15% reduction in teen employment (Government of Ontario, Ministry of Finance, & Gunderson, M, 2007). Although some people think increasing the minimum wage is a positive thing, it is not as those it affects will have a difficult time securing employment as they are being replaced by potential labor-saving technology and by the fact that companies will have already cut their costs by laying off many workers.

In addition to employees losing jobs as well as hours being cut back, this causes an increase in poverty levels. Low income families that are already working minimum wage jobs could have their hours cut back or may end up being completely laid off. This could prohibit them from moving out of poverty. Raising the minimum wage is a poorly targeted approach to try to help the people of Ontario who are struggling to afford basic necessities. That’s because a large portion of minimum wage workers don’t actually live in poor households. “According to survey data from 2004, to profile low wage earners and poor households, we find two important results. First, over 80 percent of low wage earners are not members of poor households and, second, over 75 percent of poor households do not have a member who is a low wage earner” (Minimum Wage Increases as an Anti-Poverty Policy in Ontario, 2017). Only roughly one in seven minimum wage workers in Ontario live in low-income households. Frankly, most minimum wage workers are not actually poor. There is not a strong correlation between working a minimum wage job and living in poverty, making the idea of raising minimum wage to attempt to decrease poverty an irrelevant change (Eisen, 2017). When the minimum wage rises, costs of everyday items also rise such as prices of food from the grocery store along with toiletries and everyday essentials. This means that a lot of low income families who already struggle to make ends meet will have an even more challenging time trying to afford the items as they have increased in price.

Although raising the minimum wage in Ontario to $15.00 per hour seems to be a straight forward solution, it is unfortunate that this oversimplification has many unintended consequences. Business owners will have to pay out more money to their employees and will also have to raise the prices of their products in order to accommodate the additional wages. Raising the minimum wage in Ontario will also result in major job losses for many employees’ due to small business cut backs and layoffs. In addition to employees losing jobs as well as hours being cut back, this causes an increase in poverty levels and no correlation in the efforts of trying to decrease poverty by raising the minimum wage. Even though some people think raising the minimum wage is the best tool for decreasing poverty and increasing employment, raising the minimum wage has a negative impact on society because it financially damages small and large businesses, causing an increase to unemployment and is the wrong approach in the effort to decrease poverty.