The biggest victims of a minimum wage hike are always young people. In Canada, 58.4% of workers earning minimum wage are in the 15-24 age demographic. And besides, if you don’t want a minimum wage, build skills that are worth more to employers.
The Canadian province of Ontario is set to raise its minimum wage to $15 per hour by 2019, and this renewed the decades-long debate about the pros and cons of government mandated increases in pay for low-skill workers.
To figure out the effects of this particular minimum wage hike on poverty and the employment, it’s important to first establish the facts of Ontario’s situation.
The province’s current minimum hourly wage is $11.40, about $8.50 USD, similar to many American states that mandate workers be paid more than the current $7.25 federal minimum wage. Ontario’s minimum wage will increase to $14 per hour in 2018, then $15 in 2019 – just under a 32% increase in all.
Ontario, with both Ottawa and Toronto within its borders, has the largest economy of any province in Canada, producing 39.4% of Canada’s total GDP. This translates to a strong average hourly wage for the province’s citizens of $26.43, just above the national average.
But that’s the whole province’s average wages. The biggest victims of a minimum wage hike are always young people. In Canada, 58.4% of workers earning minimum wage are in the 15-24 age demographic.
The average hourly wage of those within Ontario’s 15-24 demographic is $14.55. No other age group has an average wage of less than $27.90.
So, what will happen to these young, low-skilled workers when the $15 minimum wage takes effect? As The Economist points out, for every 10% increase in minimum wage, employment drops about 2% for those affected (i.e. Ontario’s young people). The Canadian think tank, Frasier Institute, finds that that number is between 3%-6%. Again, Ontario’s minimum wage is about to jump by 32%.
This decrease in employment makes sense, as a minimum wage is essentially a price floor for labor. Price floors prevent suppliers (workers) from selling their goods/services (labor) to consumers (employers) for less than a certain amount (minimum wage). When a price floor is above the market equilibrium price (what said good or service would cost without government interference), consumers will not buy as much of that good or service, as it is no longer cost-effective for them to do so. This causes a surplus of what is being supplied. Another word for a labor surplus is, of course, unemployment.
These are the laws of economics. No matter how well-intentioned or progressive a policy is, it is not immune from the brute force of these laws. If you raise the minimum wage, unemployment among those affected will rise just as surely as gravity will pull an apple towards the earth when it falls from a tree.
Karl Baldauf of the Ontario Chamber of Commerce expounded on the possible major effects of the Ontario minimum wage increase in a segment on The National, a show on CBC News.
“A number of businesses have indicated to us that they’re going to have to increase prices on everyday goods to consumers,” he told the show’s host. “Other businesses have said that they’re going to have to scale back on the number of workers that they have. And still other businesses, especially small businesses, have said that they’re going to have to close up shop completely.”
Canadian economist, Armine Yalnizyan, despite being in favor of the minimum wage increase, affirmed Baldauf’s concerns in the same segment.
“Definitely there will be job losses,” she said, “definitely businesses will have to shut down.”
Those calling for minimum wage increases love to refer to a “living wage.” They explain how it is nearly impossible to survive on a minimum wage in many places, even if a person is working full time. Raising the minimum wage is a tool to fight poverty.
This argument, however, is disingenuous. As of 2009, less than 3% of full time workers in Canada were making minimum wage, compared to 18.5% of part-time workers. To boot, among Canadians making minimum wage, about 88% live in households above the Low Income Cut-Off, Canada’s version of the poverty line.
It’s also important to understand why minimum wage workers are paid minimum wage; they have minimum skills.
As a minimum wage worker in the state of Maryland, I can attest to that. At my job, I press buttons on a cash register, fill up cups with pop and sweet tea and put chicken in bags. Anyone can do that.
Just because 3% of full-time workers don’t have the skills to make more than the government mandated minimum doesn’t mean businesses should be forced to pay them more than their labor is worth on the market. If you don’t want a minimum wage, build skills that are worth more to employers.