Big wage boost a leap into the unknown

The Canadian province of Ontario is about to become a test case for a debate that has divided economists and politicians for decades: whether a higher minimum wage will really boost living standards for the most vulnerable workers, or hurt them by forcing employers to cut jobs.

Ontario plans to increase the minimum wage 32 per cent to C$15 ($16.76) an hour by the end of next year.

Big grocers are pushing back, saying the change will cost them hundreds of millions of dollars and may accelerate a move to automation, such as self-serve checkouts. Restaurant owners argue the new wage bill could cost jobs. And critics of the move say one big concern is whether everyone else on the payroll will demand a big raise to keep pace.

“This is just too fast,” says Ken Grondin, chief financial officer at Cara Operations, which runs some of Canada’s most popular eateries including the Harvey’s hamburger chain. “The highest cost risk is if the whole wage scale goes up by the same factor.”

Ontario is advancing legislation to move its minimum wage to C$14 at the beginning of 2018 — the steepest in Canada and higher than US states such as Michigan, one of its main manufacturing competitors. The next step is to C$15 at end of next year.

New York is also moving quickly to a US$15 ($20.90) minimum wage, but the phase-in will be staggered. Workers at companies with 11 or more staff in New York City will make at least US$15 an hour by 2019, while smaller firms will have until 2020 to lift wages to that level.

Morley Gunderson, a University of Toronto professor emeritus, found that a 10 per cent minimum wage increase cuts youth employment by at least 3 per cent. A jump of more than 30 per cent is “huge,” he says.

“It is at best an exceedingly blunt instrument for dealing with poverty and it may even be harmful.”

The province’s own Financial Accountability Office forecast 50,000 job losses. The higher wage would boost labour income by 1.3 per cent by 2019, with just 27 per cent of those gains going to low-income households. Toronto-Dominion Bank sees as many as 90,000 jobs lost by the end of the decade from the move.

The higher minimum wage may also put Ontario at a competitive disadvantage to neighbours such as Quebec, New York and Michigan.

“I know this is going to be challenging for business,” says Kevin Flynn, the government’s Labour Minister. “I don’t think it’s a roll of the dice, I think it’s a call to action.

“Surely the minimum wage that you’re allowed to pay somebody should give them a basic living.”

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