Workers with higher wages have more money to spend buying products.
by Armine Yalnizyan
President Barack Obama put the idea of raising the minimum wage on the radar in the US It deserves to be on the radar in Canada too. That's because low-wage work is on the rise.
Obama says raising the federal minimum wage from $7.25 to $9 an hour is good for families dependent on low-wage jobs, and for businesses dependent on more consumer power to fuel their growth. A growing economy helps balance the books too.
Nowhere is this more important to consider than in Ontario, where minimum wage workers now account for almost one in 10 employees, more than double the share of a decade ago. (These stats don't include the self-employed.) Ontario's workers are more reliant on minimum wage jobs than any other part of the country, but for Prince Edward Island and New Brunswick.
Kathleen Wynne, please pay attention.
Household spending drives 54 percent of gross domestic product..
With more people working at or near the minimum wage in Canada, freezing the statutory minimum means a bigger share of consumers will lose purchasing power to inflation. That's bad news for the economy, since household spending drives 54 percent of gross domestic product.
There has been no federal minimum wage in Canada since 1996. Ontario and British Columbia have the highest, at $10.25 an hour.
Most provinces have been increasing their minimum wage every year, right through the recession. Ontario's minimum wage workers haven't had a raise since March 2010. Inflation has taken a 6.5-per-cent bite out of the minimum wage's purchasing power since then.
Just over 1 million Canadians are paid at the minimum wage. Ontario accounts for over half of them (534,000). Many people could see a welcome increase in take-home pay if the minimum wage were raised in Ontario to $11.50 an hour, recommended by Ontario's biggest anti-poverty group, 25in5.
Let me make that real for you. A person working full-time, full-year at a minimum wage job in Ontario makes $20,500 before taxes. With the increase, they could make $2,500 more, pre-tax.
People at the bottom of the income spectrum spend all the money they have, and more. Increase their pay, they spend more money, raise demand, boost the economy. Employers don't create jobs; consumers do.
People at the bottom of the income spectrum spend all the money they have, and more. Increase their pay, they spend more money, raise demand, boost the economy.
But raising the minimum wage could mean job loss too. That's the main point of those who argue increasing wages will do more harm than good (though why that only applies to workers, and not bosses, beats me).
Clearly some employers can absorb or pass on higher costs more easily than others, whether for labour or other inputs.
It's often assumed that employers who hire minimum wage workers are small businesses. Surprise: More minimum wage workers are being hired by businesses with more than 500 employees over time. In 1998, big business hired 29.6 percent of all minimum wage employees in Canada; by 2012 they employed 45.3 percent. In Ontario, big business accounts for almost half of all minimum wage workers.
But won't young workers be hardest hit by job losses if you raise the minimum wage? It's true most minimum wage job-holders are young. Raising the minimum wage would affect them in two ways — increase the pay of those who work a minimum wage job (making it easier to pay for college or university, and not get as deep in debt); and increase unemployment.
Wait. The minimum wage hasn't increased since 2010 in Ontario and the number of unemployed young workers in Ontario is still rising. Clearly other factors are at play — like an economy that's not growing very fast.
Every year the costs of basics like housing, post-secondary education and energy rise. Wages have increased higher up the job ladder. When should the folks on the bottom rung see an increase? Never?
And, in case you didn't notice, an increasing share of minimum wage workers aren't kids. They're over 35. Alberta has doubled its share of adult minimum wage workers over the past 15 years, to 33 percent. Almost one in four minimum wage workers are adults in Newfoundland and New Brunswick. In Ontario, it's 27 percent, up from 17 percent in 2004. (See here for more provincial data.)
Every year the costs of basics like housing, post-secondary education and energy rise. Wages have increased higher up the job ladder. When should the folks on the bottom rung see an increase? Never?
People will say, with the economy so fragile, this is no time to raise the minimum wage. But it has been raised every year in almost every province outside Ontario, and jobs have been increasing.
A clear plan to raise Ontario's minimum wage from $10.25 to $11.50 — and indexing it to inflation thereafter — could increase household incomes, purchasing power, even business confidence. It can bolster the economy, from the bottom up.
Less inequality, more growth. What's not to love? We should be raising the roof about the benefits of raising the wage floor.
About Armine Yalnizyan
Armine Yalnizyan (MIR 1985) is an economist who has focused on serving the community since her graduation from the Centre in 1985. After 10 years as program director with the Social Planning Council of Metropolitan Toronto, in 1998 she authored a ground-breaking report, The Growing Gap, about income inequality in Canada. Through this, and her many other publications (reports, articles and chapters in books) she has contributed to Canada's public discussion of social and economic equality. In 2002, Armine became the first recipient of the Atkinson Foundation Award for Economic Justice. She is a founding member of the Progressive Economics Forum; and a board member of the Public Interest Advocacy Centre.
One Response to “Higher minimum wage would boost economy”
Sorry, the comment form is closed at this time.
We pay far too little attention to the domestic economy and are fixated on foreign exports. With wages not or barely keeping up with inflation the dometic economy is shrinking, which also affects the taxes collected and increases the deficit.