Tag Archives: minimum wage

Why Ontario Went About the Minimum Wage Increase the Wrong Way

Ultimately, I am a fan of increasing minimum wage.  Wage disparity is problematic and this sort of addresses it but the implementation causes certain problems.

Why Ontario Went About the Minimum Wage Increase the Wrong Way, Ontario minimum wage business

Punishes Businesses that Have a Large Portion of Their Staff as Minimum Wage Works

Companies that have a large portion of their staff as minimum wage works, or close to minimum wage, will see their largest expense massively increase.  The rate hike over the multi-year period will equate to a ~32% increase over this time period.  This is extremely problematic for these businesses.

Businesses that employ people that are primarily high wage workers will see no impact.  People aren’t going to be asking for 32% raises because the minimum wage has increased by that factor.

This is a double standard for businesses.  One of the purposes of this legislation was to help discourage the income disparity.  In their implementation, they are creating a disparity for business based on their industries business model.

Disparity Creates Mass Inflation for the Goods/Services that Minimum Wage Workers Purchase

This goes back to the previous point.  If I am a business that employees primarily minimum wage worker, and my largest expense increases by such a large factor, I have no choice to respond by increasing my prices or try to reduce the number of people I employ.  Alternatively, I would go out of business.

Now, the issue with this is their prices are probably going to have to rise by a similar factor as the wage increase.  Most of the expenses that a minimum wage worker has been paid to businesses that employ minimum wage workers (i.e. food).  This means that their expenses will rise making their 32% high wage they are receiving less impactful.  If expenses increase by the same factor as their wage increase, it’s net zero.

If a business owner decides to try to forgo raising prices and reduce the number of employees they employ, the employment among minimum wage workers will greatly increase.  This means that some that keep employment will see a great benefit, through hirer wages compared to their expenses (prices would not rise by the same factor as wages in this scenario).  However, the supply of minimum wage jobs would greatly decrease.  Since the price cannot change (minimum wage), the supply of minimum wage jobs will not equal the supply and the number of unemployed will increase. This leads back to disparity as things will be better for those that keep their job, but worse for those that lose it.

How it Should Have Been Implemented

Ontario needs to keep the minimum wage increase but spread the cost of the increase in all business, not those that just employ minimum wage workers.  People don’t like the word tax, but there needs to be a tax based on a company’s employee expense.  This tax would get redistributed among businesses based on their % of employment of minimum wage workers.

This will result in all businesses being impacted by the increase equally, which will protect the minimum wage worker – the whole point of this increase!