What A Minimum Wage Increase REALLY Means – Ward 33 E-Blast August 17th
At summer picnic events and canvassing on summer evenings, I’ve taken a lot of questions about the coming increase to the Ontario minimum wage. What will this mean to Toronto specifically? What is the new amount, $15 based on? Is it a meaningful enough increase for Toronto? Will people lose their jobs?
There are multiple scholarly papers out there on the impacts of minimum wage increases on the economy, any economy. I’ve spent the last few evenings reviewing them to try to separate out what we will need to know about Toronto. I was optimistic there would be an ability to write a balanced piece, given the recent release of a report written for the Ontario Chamber of Commerce. Most of the other reports advocated going ahead as soon as possible. Not surprisingly, the report commissioned by the Chamber of Commerce warned against it. By Wednesday, however, the Chamber of Commerce was acknowledging an erroneous assumption in their study that threw all of their findings into question.
During my years of chairing the Budget Committee for Toronto Council, a related duty was sitting on Mayor Miller’s Economic Competitiveness Committee. I learned a great deal there from leading economists who worked with us, and international representatives from the Organisation for Economic Co-operation and Development (OECD). I then spent the next six years on the Economic Development and Culture Standing Committee and on the Board of Directors of InvestTO, our former arms-length economic development corporation. Reading four different minimum wage studies was like an examination to test whether or not I retained everything I have learned from the experts over the years.
During my childhood, the concept of minimum wage was relatively new and it was federally set. An announcement of an increase was usually followed by forecasts of rampant student unemployment. My parents and their friends would lament that the front lawn of the Unemployment Insurance office would be “Filled with students and draft-dodgers all summer!” Nowadays, everyone seems to understand that far more adults, many of them parents, are relying on minimum wages.
To examine whether or not these minimum earners will lose their jobs, we can look to recent sharp minimum wage increases in the State of California. This is an interesting case because the state opened the door to a big increase but left the starting dates up to local communities. In the San Francisco area, different municipalities in the same metro area chose different dates, allowing researchers to adjust for other economic impacts that also affect businesses. It is also a famously tech-savvy town where residents rate every business they use online.
The hospitality industry was the sector the San Francisco researchers studied because of its heavy reliance on minimum wage workers. Only slightly more hospitality businesses struggled and closed due to the wage increase than did so in neighbouring municipalities where wages had not yet changed. When the research firm looked at online ratings, they discovered that businesses with high online ratings for customer satisfaction saw no impact and no closures. In some cases, the highly popular businesses continued to grow. Lower-rated businesses closed in some cases but only at a slightly faster pace than their low rated counterparts in the neighbouring municipality where the minimum wage had not yet been increased. Due to increased demand, the more popular businesses absorbed many of the staff affected by closures.
Boy, that last paragraph was a tough slog. What did it mean? In short, the study found that if you are running a good business that neighbours like and you are a good employer you will have a stable customer base and stable staff complement that keeps your business growing.
The current Ontario proposal is to increase the minimum rate to $14/hr in January 2018 and then again to $15 by 2019. Up until now increases have been gradual and indexed to inflation. Even after these traditional increases, minimum earners are still well below the poverty line. We are left with no way of knowing what effect the increase is having on actual poverty reduction. Since minimum wage workers are still in poverty, the inflationary increases do little to stimulate consumer spending. Ironically, increased consumer spending would help the very businesses that pay minimum wage.
At $15, we can see individuals jump from earning a yearly sum of $22,500 to $30,000 which is roughly the poverty line. Try to imagine the impact of that increase on a person, or a family where 2 parents might go from a household income of $45,000 to $60,000. Imagine after a few months of earning the new wage, feeling like you could afford a proper haircut, groceries instead of a food bank visit, a first cab ride in years or maybe having enough money to take your children to the cinema for the first time ever. Pretty soon you are stimulating the very economy that employs you.
All of the Ontario studies show the economy has been improving in Ontario since 2014. This is particularly true in Toronto, but only for those that earn enough to invest and save. Addressing the inequality through more government taxation and poverty programs challenges us all and does nothing to stimulate the economy. Addressing the inequality at its source, the wages we earn, has the ability to improve lives and generate business. And as we learned from the study in San Francisco, especially if that small business is a well-loved neighbourhood enterprise to begin with.