New Report Warns of Minimum Wage Hike Dangers

A brand new report designed to assess the economic impact of the Ontario government's proposed minimum wage increase has indicated that the hike, should it occur, will lead to a massive uptick in minimum wage earners.

As you may recall, the provincial Liberals recently proposed raising Ontario's general minimum wage to $15 per hour, a move that the Financial Accountability of Office of Ontario (FAO) says will dramatically increase the number of minimum wage workers from just over 500,000 currently to 1.6 million in 2019.

The report also says that under a $15 minimum wage, adults and those with full-time jobs would represent the majority of minimum wage workers.

To be clear, the report does not suggest that full-time workers will make less or undergo salary cuts. It points out that people who currently enjoy an above minimum wage salary will likely become minimum wage earners by default if and when the hike occurs.

The report points out that under the current minimum wage of $11.40 per hour, teens and young adults and those with part-time jobs account for the majority of minimum wage workers.

And while it appears an increased minimum wage will give lower-income workers a boost, the FAO doesn't believe it'll do much to reduce poverty in the long run.

"The FAO estimates that the higher minimum wage will raise total labour income (after adjusting for price inflation) by 1.3 per cent by 2019," the report reads. "However, the FAO estimates that just one-quarter of the higher labour income would directly benefit low-income families. Since the income gains would not be concentrated on low-income families, raising the minimum wage would be an inefficient policy tool for reducing overall poverty."

The report also says (and this is to be expected) that the hike will will increase payroll costs for Ontario businesses, something the FAO suggests will lead to some job losses for lower income workers.

That said, the report does point out some benefits.

"At the same time, higher labour income and household spending will boost economic activity leading to some offsetting job gains," the report reads.

However, the report does predict substantial job losses.

"On net, the FAO estimates that Ontario's proposed minimum wage increase will result in a loss of approximately 50,000 jobs (0.7 per cent of total employment), with job losses concentrated among teens and young adults. However, there is evidence to suggest that the job losses could be larger than the FAO's estimate. 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."

The hike, part of the government's Fair Workplaces, Better Jobs Act, will see the current minimum wage of $11.40 an hour climb to $14 on Jan. 1, 2018. The following year, it will increase to $15.

The FAO estimates that approximately seven per cent of all Ontario workers (or about 520,000 people) are earning the current minimum wage in 2017. The report says that approximately 60 per cent of Ontario's current minimum wage workers are teens and young adults while the remaining 40 per cent are adults. The majority of minimum wage earners (about 60 per cent) are part-time employees.

The government says the higher minimum wage is expected to benefit nearly 1.6 million workers (or 22 per cent of Ontario's workforce) by 2019.

Whether or not businesses will downsize or automate more positions—thus eliminating some minimum wage jobs—to acclimate to the proposed change remains to be seen.

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