Parisa Mahboubi is a Senior Policy Analyst at the C.D. Howe Institute.
The largest one-time increase in the minimum-wage rate that any province experienced over the past two decades happened in Ontario at the beginning of the year. The early results are in: As anticipated, it has caused a reduction in youth employment, but this dramatic minimum-wage increase has also extensively hurt the employment of older workers.
The Ontario government increased its minimum wage to $14 an hour on Jan. 1 from $11.40 an hour; a 23-per-cent boost. The real impact of a higher minimum wage, however, depends on how businesses absorb the increase in operating expenses when labour costs go up.
Did employers cut back on the number of workers?
Comparing the pre- and post-January three-month averages of the number of employed persons in the Labour Force Survey shows Canada lost 260,000 full-time jobs in the first quarter of 2018. Part-time jobs fell too, by 29,000. Of the total reductions in full-time and part-time employment, 43 per cent and 70 per cent, respectively, were from Ontario. The greater Ontario share of part-time employment loss can probably be attributed to its minimum-wage increase since minimum-wage earners are more likely to hold part-time positions.
In Canada, employment declined across all age groups except among adults aged 25 to 54 in part-time employment for whom there were 18,000 new jobs. However, there was no contribution from Ontario, which experienced about 500 job losses.
Canada as a whole, however, lost about 25,000 full-time jobs among adults aged 55 and older. Ontario was solely responsible for this decline since its loss of 39,000 full-time positions offset all employment gains among adults aged 55 and older in the rest of the country.
The reduction in employment of full-time workers aged 55 and older in Ontario is surprising since minimum-wage increases have historically had positive impacts on employment. This observation can imply that the substantial minimum-wage hike in Ontario has extended its impacts to full-time employment of older adults, particularly among those aged 55 to 65.
According to previous Canadian studies, minimum-wage increases disproportionately affect employment of teens. Ontario’s minimum-wage increase also seems to have the largest impact on young people (15 to 24 years old). As opposed to the rest of Canada, the largest employment losses in Ontario were among youth followed by older adults over 54 while those aged 24 to 54 experienced a negligible reduction in full-time and part-time employment.
A recent publication by Statistics Canada looks closely at the age distribution and family types of minimum-wage earners. It showed that there has been a shift in the composition of minimum-wage earners from youth toward older workers as a consequence of the latest minimum-wage increases in Canada.
The question now is how government can help low-income earners without affecting their employment. The new government of Ontario has proposed a minimum-wage tax credit in lieu of the previously scheduled minimum wage boost in 2019. However, a minimum-wage tax credit poses some challenges, such as who should be included to ensure its fairness and how to eliminate any disincentive effects on behaviour of other low-income earners. For example, this policy would hurt those who earn slightly above the minimum wage as they would not receive a minimum-wage tax credit and it would, therefore, create an incentive for workers to remain at the minimum-wage rate. As such, a tax credit that takes into account all low-income earners is more effective.
The January minimum-wage increase in Ontario has affected the employment of workers in a broad age range. Alternative policies to provide financial support for low-income families without causing any employment loss or distorting incentives to work might include a tax credit that includes income-tested clawbacks.