Minimum wage increases could lead to 60,000 fewer jobs by 2019: Bank of Canada
Ontario raised its minimum wage to $14 per hour on Jan. 1 from $11.60 and plans to increase it to $15 in 2019, while Alberta is expected to raise its minimum wage to $15 later this year.
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At the end of January, Indigo employee Sarah Desabrais is expecting her pay stub to be a little heavier than usual. On Jan. 1, Ontario increased the minimum wage to $14 from $11.40.
“I’m not sure how it’s going to work,” said the 22-year-old, who has been earning minimum wage for five years now, most of her working career. “People are worried that the increase won’t change anything because, even though everyone will earn more, the prices might go up.”
Desabrais worries the price of everyday things will go up: gas, food, rent. “I don’t get why businesses are freaking out,” she said. “If people have money, they’ll buy more.”
Her fears aren’t unfounded. A December report by Bank of Canada staff says the minimum wage increase could cost Canada 60,000 jobs by 2019, as well as higher prices.
Economists, however, say Desabrais has nothing to worry about: wage increases have only positive benefits for the economy.
The Bank of Canada report joins other reports in painting a bleak picture of the effect of wage increases. The Canadian Federation of Independent Business reported in a July 2017 survey that 34 per cent of Ontario’s small- and medium-sized businesses would consider selling, closing or moving their business as a result of the proposed increase.
In September, a report by the Canadian Centre for Economic Analysis, commissioned by several provincial business lobby groups, found that there would be fewer jobs at risk if the wage increase were spread over five years.
“The Canadian economy can cope with the minimum wage increases that are planned,” said Craig Alexander, chief economist of the Conference Board of Canada. Wage increases are planned later in the year in Alberta, Quebec and Prince Edward Island. “There is nothing to suggest these are going to derail the Canadian economy.”
Economists are quick to say that determining possible effects of the wage increases is more complicated and nuanced than what the initial reception of the Bank of Canada research suggests.
For one, the report does not say that 60,000 workers will be laid off, but that 60,000 fewer jobs will be created. The report goes on to add that this number could range from as few as 30,000 jobs to 140,000 jobs.
“The bank is clear about the uncertainty around the number looking at this range,” Alexander said. “The range is so large because they looked at the spectrum of numbers of workers at different levels.”
The report’s estimated number is 0.3 per cent of the national employment levels recorded in November, the last month data is available for. In the same month, 80,000 new jobs were created.
The Bank of Canada estimated that about eight per cent of all employees work at minimum wage.
The authors of the report declined to speak to the Star.
“So the loss (the report estimates) is less than one month’s job creation,” said Sheila Block, a senior economist with the Canadian Centre for Policy Alternatives. “Really, the report confirms that an increase in minimum wage will have no impact on employment.”
In fact, Alexander said, there is too much uncertainty to be able to calculate the effect of minimum wage increases.
For instance, the central bank report noted that if the average working hours declined after the wage increase, the number of jobs lost would also be lower.
Another factor that could determine the effect on employment is the interest rate, which the bank controls, said David Macdonald, also a senior economist at the CCPA. The Bank of Canada governor has warned of more increases to come.
“If the (Bank of Canada) didn’t increase it,” Macdonald said, “the impact on employment would be lower.”
Other factors, Alexander added, include the rate at which businesses automate their operations and how many workers who earn more than the minimum wage demand a proportional increase in their own income.
“The message here is that the economy can adjust to higher minimum wages,” Alexander said. “We’re going to have to see how things will play out.”
Both Alexander and Block predict the biggest effect might be felt by specific industries and communities with higher populations of lower-income workers.
Highly competitive industries, such as retail sector, food and beverage and tourism, will not be able to pass on the wage increase entirely to the consumer, Alexander said. “Businesses are going to try and adjust. It’ll have an impact in terms of their hiring practices and business model.”
What is certain, however, is that wage increases give lower wage workers more money to spend.
“When you put more money in people’s pockets, they spend it,” said Deena Ladd, the co-ordinator of Worker’s Action Centre in Toronto, an advocacy group that campaigned strongly for the wage increase.
“If you the increase the money and wages of a low wage worker they will spend their money in local businesses.”
Ladd said reports like the Bank of Canada’s and others create unfounded fears. She believes the increase can help some low wage workers move out of poverty.
“Economies prosper by customers having money,” she said. “For many workers, (the increase) will mean an extra $300 to $400, which is huge in terms of being able to just buy things.”
Economic models, such as the one employed by the report, generally ignore the benefits of minimum wage increases, Macdonald said.
“This is a fairly repeated pattern,” he said. “Every time the minimum wage increases, you see reports that the sky is falling, but it’s unlikely that’s going to happen.”