Social Policy in Ontario

It’s likely that the panel will advise the government to tie the minimum wage to an economic indicator, possibly the Consumer Price Index (CPI), a method that works well in several other provinces and countries.

And though it may come as a surprise, Ontario’s business community is prepared to accept regular inflationary increases to the minimum wage—the Ontario Chamber of Commerce is even recommending it to the advisory panel.

Why do businesses support regular hikes?

Because the current ad hoc process is opaque, politicized, and benefits nobody. Workers are subjected to long wage freezes and deteriorating purchasing power. On the other hand, employers must deal with sudden and unforeseen increases in the cost of doing business.

Businesses need a minimum wage system that is predictable, transparent, and fair—one that accounts for potential impacts on Ontario’s economic competitiveness.

While businesses are open to gradual increases linked to inflation, they flatly reject a large increase in the minimum wage as a means to “make up for lost time.” Although the current rate of $10.25 has been untouched since 2010, a sudden increase would hurt growth and employment in Ontario at a critical period of economic recovery.

A one-off rate increase would undermine Ontario’s economy for two reasons.

First, a beyond-inflationary “bump” in the minimum wage will force Ontario businesses to shed thousands of workers. Ontario’s youngest workers will fare the worst in this scenario. A recent study commissioned by the Government of Ontario finds that a 10 per cent increase in the minimum wage would weaken teen employment levels by 3 to 6 per cent, and have a slightly less severe impact on young adults.

At a time when Ontario’s youth employment rate sits stubbornly at 50 per cent, a significant bump in the minimum wage would exacerbate the problem. The approach would also be at odds with Premier Kathleen Wynne’s commitment to tackling chronic unemployment among this demographic.

Second, although some suggest that raising the minimum wage will alleviate poverty, many studies have found that it can actually have the opposite effect. A hike as small as 10 per cent is correlated with a 4-6 per cent increase in families living in poverty. The reason for this is simple: when a minimum wage hike is introduced, businesses are forced to adjust to higher costs, and many minimum wage earners lose their jobs as a result.

Let’s be clear: any increase to the minimum wage is going to cost Ontario jobs. Our own research shows that a hike would have a particularly detrimental effect on many of Ontario’s key sectors. Nearly 60 per cent of businesses in the retail, hospitality, and leisure sectors have indicated that a hike in the minimum wage would hurt their ability to compete and force them to lay off workers.

Given all the options before us, pegging the minimum wage to an economic indicator that measures inflation works best for both workers and employers. Workers’ purchasing power will remain constant over time, and businesses won’t be subjected to sudden increases.

We recommend the CPI over other economic indicators because it best measures changes in the cost of living.

Ontario is still recovering from the recent economic downturn. Any decision to raise the minimum wage must take into account the fragility of Ontario’s economy. After all, it’s businesses—many of whom are still adjusting to Ontario’s new economic reality—that will be footing the bill for any increase to the minimum wage.

Allan O’Dette is president and CEO of the Ontario Chamber of Commerce.

< http://www.thestar.com/opinion/commentary/2013/09/18/ontario_should_set_minimum_wage_in_regular_predictable_way.html >