Ontario’s $15 minimum wage could cost 50,000 jobs, says watchdog.

TORONTO • Ontario’s plan to increase the province’s minimum wage to $15 an hour by 2019 will be mostly ineffective at reducing poverty, and could ultimately cause a net loss of 50,000 jobs, an independent analysis of the policy has found.

The Financial Accountability Office of Ontario on Tuesday released a commentary covering the province’s proposal to increase the minimum wage, finding the added labour costs for businesses will increase workers’ incomes, but that those extra payroll costs will force firms to axe some lower-income positions.

The watchdog estimated that the wage hike will reduce total employment in the province by about 0.7 per cent, or a net total of 50,000 jobs, as businesses try to shrink their costs through automation or price increases that could lead to reduced sales and cause layoffs.

“However, there is evidence to suggest that the job losses could be larger than the FAO’s estimate," the FAO said.

“Ontario’s proposed minimum wage increase is both larger and more rapid than past experience, providing businesses with a greater incentive to reduce costs more aggressively.”

Businesses in Ontario and Alberta — where a $15 minimum wage is slated to go into effect next year — are bracing for the added payroll expenses, which they have warned could cause job losses.

The new government in British Columbia also supports a minimum wage hike, and has said it will appoint a special commission to “establish a pathway to a minimum wage of at least $15 per hour.”

The FAO, an independent officer of the Ontario legislature that examines its finances and policies, concluded that “higher minimum wages are not an effective way to alleviate poverty,” as just 27 per cent of the gain in labour income would flow to low-income families. Instead, households above the low-income cutoff would reap most of the benefits, the watchdog found.

“As a result, the income gains from Ontario’s proposed minimum wage increase would be relatively broadly distributed across all households and not concentrated on low-income families,” the FAO wrote. “Since minimum wages target low-wage workers, but not necessarily low-income families, raising the minimum wage would be an inefficient policy tool for reducing overall poverty.”

Ontario’s Liberal government says the province’s strong economic growth is allowing it to increase the minimum wage and usher in a host of employment and labour law reforms, such as ensuring paid sick days for workers. The government also cited economic studies touting the benefits of higher wages.

“We don’t believe that anyone in Ontario who works full time should be struggling to pay their rent, put food on their tables or care for their families — especially when the provincial economy is doing so well,” said provincial Labour Minister Kevin Flynn in a statement. “The moral and economic evidence supporting this fundamental belief is without question. We will not back down from this commitment.”

In a Monday note on Empire Co. Ltd., which owns the Sobeys grocery brand an employs many minimum wage workers, National Bank Financial said: “Significant 2018 minimum wage increases planned for Ontario (~21% y/y) and Alberta (~11% y/y) have worried investors, given the uncertainty around how the grocers will offset these headwinds.”

“Historical data suggests that the industry will mitigate the impact of higher wage rates largely through higher prices, but also through labour adjustments.”

The FAO estimated that about seven per cent of the province’s work force is earning Ontario’s current minimum wage, or approximately 520,000 people. The current $11.40 wage is set to rise to $11.60 an hour on Oct. 1, then shoot up to $14 in January and $15 the year after, a move that would raise the incomes of about 1.6 million workers in the province, or 22 per cent of its workforce, the watchdog predicted.

But the bump in Ontario’s minimum wage, planned by Liberal Premier Kathleen Wynne’s government, would also shift the demographics of the workers earning that pay, the FAO said. Whereas about 60 per cent of current minimum wage workers are teens and young adults, a $15 wage would see adults account for 56 per cent of minimum wage workers, the watchdog estimated. As well, most of the anticipated job losses would be borne by younger workers, the FAO found.

Ontario Progressive Conservative Leader Patrick Brown said his party supports a $15 minimum wage, but argued the Liberals’ approach is out of touch with small businesses.

“When it comes to the increasing minimum wage, they’re giving Ontario businesses two options: lay off staff or raise prices,” Brown said in a statement. “Some businesses will have no choice but to do both.”