The $15 minimum wage has become the left's favourite wedge issue. But manufacturing class conflict by pitting the self-declared champions of the working poor against fat-cat capitalists is not just lazy politics. It's lazy policy and, yes, it will hurt the very people its proponents claim it will help.
Ontario Premier Kathleen Wynne knows this, or at least she should given the overwhelming weight of evidence on the topic from independent analysts. Instead, her government relied on a single narrowly-focused report by two labour arbitrators to justify its move to boost the province's minimum wage to $14 now – and $15 in 2019, provided it wins re-election.
Since Ms. Wynne became Premier in 2013, Ontario's minimum wage has increased by 37 per cent, or by more than five times the rate of inflation. At about 57 per cent of the median hourly wage of $24.73 in 2016, it is well beyond the level at which employers typically replace unskilled labour with capital – that's robots, in everyday language.
This has already happened in many parts of Europe, where high minimum wages price low-skilled workers out of the job market, robots take your orders and youth unemployment is stuck above 20 per cent.
Ontario's labour market is the healthiest it's been in a decade, so wages would be going up, anyway, right?
Yes, Ontario's average hourly wage increased by 2.7 per cent to $26.98 in December, from a year ago, according to Statistics Canada. But at $16.62, the average hourly wage in sales and service occupations was up only 1 per cent and hourly wages for part-time employees actually fell by 0.7 per cent.
What this indicates is that there is not a single labour market in Ontario, but many different ones. Some industries and professions requiring higher-skilled workers are facing labour shortages, while many low-skilled workers still struggle to find stable, full-time jobs. A 20-per-cent overnight increase in the minimum wage only makes life harder for these people by pricing them out of a job.
The minimum wage is a blunt instrument. It cannot be set arbitrarily at an artificially high rate (or low one, for that matter) without generating undesirable consequences. Nor does raising the minimum wage increase the purchasing power of low-income workers if employers simply pass on higher labour costs by boosting prices or by cutting employee hours and benefits.
The Bank of Canada estimates that recent increases in minimum wages across Canada, but principally in Ontario, will reduce employment by 60,000 in 2018. But it's where those jobs will be lost – in the lower-paying service sector – that hurts vulnerable workers the most.
This exposes the faulty logic of the Wynne government's Changing Workplaces Review conducted by labour arbitrators C. Michael Mitchell and John C. Murray. They looked at the number of Ontario workers who made less than the median income and/or earned less than 150 per cent of the minimum wage in 2014 of $11 an hour. They use this data to derive the proportion of Ontario workers they consider vulnerable at about 32 per cent of all workers.
The first problem with this analysis is that it considers only pretax employment income. This ignores substantial government transfers to low-income workers, which significantly boosts their after-tax income. The $23-billion Canada Child Benefit, an income-based program introduced by the current Liberal government to replace universal Conservative-era programs, pays out up to $6,400 to families for each child under 6 and as much as $5,400 for those between 6 and 17. The Liberals have pledged to index payments to inflation starting in July.
Another federal program aimed at the working poor – the Working Income Tax Benefit – pays out up to $1,200 to single workers in Ontario earning less than $12,000, a sum that phases out as income rises. Families earning less than $17,000 are eligible for up to almost $2,200 in WITB. The rates vary somewhat in provinces that have harmonized the WITB with their own programs.
While the federal Liberals have promised to increase the $1.1-billion program by $500-million, there is a strong case to be made for making even more dramatic enhancements to the WITB. Former Conservative leadership candidate Michael Chong proposed doubling benefits, but tripling or even quadrupling the WITB is worth considering.
The WITB earns near universal plaudits from economists, business people and social advocates alike since it encourages low-skilled workers to choose employment over welfare without raising labour costs for employers. This, rather than manufacturing class warfare, is how you help the working poor.