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Section 4: Discussion of Minimum Wage Policy Options for Ontario

  • Issued: January 27, 2014
  • Content last reviewed: January 2014

4.1 Introduction

The intent of the minimum wage is to create a wage floor for the labour market, and to ensure a minimum standard of living for employees.iii ] It also serves as a form of protection to the most vulnerable workers, who are typically in an unequal position in the employer-employee bargaining relationship.

The Minimum Wage Advisory Panel was established to examine Ontario's current minimum wage policy and provide advice to the Government on how to adjust Ontario's minimum wage. This included providing advice on an adjustment mechanism, the timing and implementation of such a mechanism, and the review process. In doing so, the Panel has examined the effectiveness of other jurisdictions' minimum wage models.

The following section will review the various policy options for each of these general questions, providing a recommendation for each based on the Panel's review.

It should be noted that the Panel was not asked to recommend an actual wage rate, nor to examine or discuss the differentials and exclusions applied to the minimum wage. These issues are beyond the scope of the Panel's review, and while important, are left to be examined by the Government or by any advisory panel tasked with such issues in the future.

4.2 Factors to be considered in revising the minimum wage

The Consultation Paper posed the following question for public input:

"In addition to these factors, are there other factors the Ontario government should consider in reviewing the minimum wage?"

4.2.1 General factors to be considered in reviewing the minimum wage.

The general factors that are considered when the Government assesses the minimum wage are:

  • Economic conditions in the province, including job growth, unemployment rates, average wages, and family incomes;
  • The cost of living, including taxes and average household expenditures;
  • The characteristics of minimum wage earners, including their age, sex, family status, industry and employer size;
  • The overall impact of previous minimum wage increases on low wage earners, including employment levels and hours of work;
  • The overall impact of previous minimum wage increases on business, including business productivity by sector and industry;
  • Trends and developments related to minimum wage in other jurisdictions, including the analysis of approaches and mechanisms used in those jurisdictions; and
  • Results from consultations with stakeholders, the public, and other departments in the Government.

The question posed by the Consultation Paper asks the Panel to discuss additional factors that should be considered. I have concluded that these factors are comprehensive and take into account the various appropriate statistical and policy considerations. Furthermore, in the online and in person submissions solicited by the Panel, very few additional factors were raised that did not fall under one of the categories enumerated above. Rather, most of the factors raised or discussed were clearly captured by one or more of the above categories.

Furthermore, through the public consultations and online submissions, it became clear that there was little disagreement about the factors that should be considered, but rather, considerable disagreement about the weight that the various factors should be accorded. For example, individuals in favour of substantial minimum wage increases tended to emphasize the cost of living as a major consideration in setting the minimum wage. Individuals associated with businesses or business groups placed more emphasis on the overall impact of previous minimum wage and future minimum wage increases on businesses.

4.2.2 Economic Indicators

The Consultation Paper posed the following questions for public input:

"Should Ontario's minimum wage be tied to an economic indicator such as the rate of inflation, average weekly earnings, or any other indicator?"

"Should Ontario consider adopting any of the mechanisms currently being used by other Canadian jurisdictions to adjust their minimum wage rates?"

The Panel deliberated the economic factors that could be used in adjusting the minimum wage. The use of economic indicators for adjustments to the minimum wage has several advantages for employees and employers. It would reduce the erosion of minimum wage purchasing power over time. It would make fair, predictable, regular and transparent changes to the minimum wage, and prevent long-term freezes and significant ad-hoc increases as a result of playing 'catch-up' from freezes or the use of an ad-hoc process.

Other Canadian and International jurisdictions have begun to use economic indicators to adjust their minimum wages. These indicators include the Consumer Price Index (CPI), average wages, and low-income measures. These indicators will be discussed below, followed by a discussion of the approaches adopted by other jurisdictions.

CPI/Inflation

The Consumer Price Index (the 'CPI') is an indicator reflecting the changes in consumer prices experienced by Canadians, calculated using time-wise comparisons of the cost of a fixed basket of goods and services.iv ] It is commonly referred to as a measure of inflation.5 ] The CPI is used widely to adjust a number of different contracted payments, pension programs and social programs, such as wages, rents, Old Age Security, and minimum wage rates in other provinces.

In deciding whether the minimum wage should be tied to the CPI, a number of factors should be considered:

  • Which CPI should be used — The Canadian CPI, or the Ontario CPI;
  • The CPI can be a negative number;
  • The CPI can be driven upward sharply by items that are not likely part of the consumption of a typical minimum wage worker (e.g. house prices in Toronto).

Using the CPI as a means by which to adjust the minimum wage would provide clarity and objectivity to minimum wage adjustments. It would keep the minimum wage from falling behind inflation, prevent lengthy minimum wage freezes, and reduce the need for large catch-up increases. However, should the average wage growth be faster or slower than inflation for long periods of time, using the CPI would not properly reflect these changes in wages. Using the CPI could also lead to automatic increases at times that may not be economically feasible, such as times when both unemployment and inflation are high.

Average Wages

There are two primary sources that can be used to calculate an average wage indicator for the purpose of minimum wage adjustments — the Survey of Employment, Payroll and Hours (SEPH) or the Labour Force Survey (LFS). Using this data, various average wage calculations can be made, using the average or median of all paid workers, or a subset of industries, such as those that employ a significant number of minimum wage workers.

An hourly wage rate is likely more appropriate than average monthly or weekly earnings, given that it is directly comparable to the minimum wage. Growth in weekly earnings depends on hours worked and as such is not directly reflective of pure wage gains.

One benefit of employing an average approach is that it maintains the minimum wage at a certain percentage or level of other wages in society. In addition, it helps to spread economic growth gains to the lowest paid workers. However, it could lead to a long-term inflationary spiral, as increasing the minimum wage will in turn increase the average wage which will in turn increase the minimum wage. It could also adversely impact slower growing sectors of the economy, especially if average wages are overly influenced by a temporary boom in one sector.

Low Income Measures

Low Income Measures can be used as a minimum wage rate economic indicator, such that increases in these measures are linked to increases in the wage rate. The most common low-income lines are the Low Income Cutoffs (LICOs), the Low Income Measure (LIM) and the Market Basket Measure (MBM). As noted by Statistics Canada,

In order to provide a holographic or complete picture of low income, Statistics Canada implements an approach that uses three complementary low income lines: the Low Income Cut-offs (LICOs), the Low Income Measures (LIMs) and the Market Basket Measure (MBM). While the first two lines were developed by Statistics Canada, the MBM is based on concepts developed by Human Resources and Skill Development Canada. Though these measures differ from one another, they give a generally consistent picture of low income status over time. None of these measures is the best. Each contributes its own perspective and its own strengths to the study of low income, so that cumulatively, the three provide a better understanding of the phenomenon of low income as a whole. These measures are not measures of poverty, but strictly measures of low income.

The LICOs are based on the relationship between the incomes and the consumption patterns of Canadian households as observed in 1992. The LICOs have been very widely used in Canada since the 1970s. On the other hand, the LIM is based solely on the distribution of household income across the Canadian population and is intended as a reference for international comparisons. Statistics Canada has been producing the LIMs since 1991 and they are aligned with latest international standard. Finally, the MBM defines low income in relation to the cost of a predefined set of goods and services. The price of this "basket" of goods and services takes regional differences in the cost of living into account.vi ]

The LICOs identify the level below which a family spends 20% more than the average family on food, clothing and shelter. While LICO is not a 'poverty line' per se, it is the most frequently used metric when measuring poverty and low income in Canada.vii ] LICOs are updated each year according to changes in the CPI. Thus, linking to changes in LICO can be considered equivalent to linking to changes in the CPI. The LIM is updated each year based on changes in the median household income adjusted for household size. The MBMs are updated each year for price changes in the MBM basket of goods. This is similar to CPI, but calculated differently for different communities in Ontario. An Ontario-level MBM does not currently exist.

Productivity

Productivity is another metric that could be tied to minimum wage rates. Statistics Canada's annual multifactor productivity program produces national and provincial indexes of multifactor productivity and supplementary measures, such as output, capital input, labour input, and intermediate inputs, for the business sector, economic sub-sectors and their subindustries.viii ] This program attempts to investigate growth in labour productivity, as well as the key determinants of the productivity and related growth. Statistics Canada notes as follows:

Productivity measures the efficiency with which resources are employed in economic activity. Annual productivities series are widely watched by analysts, government policymakers and researchers to quantify the extent to which productivity contributes to economic growth and the standards of living over the long-run.ix ]

However, more research investigation is needed before productivity increases can be employed as a basis for minimum wage revisions. There are many things we do not fully understand about the relationship between productivity and all other wages. During 2000-2010 productivity in Canada grew at a cumulative average growth rate (CAGR) of 0.4% per annum while the growth rate in the real average wage was 1.6% measured in US dollars. On the other hand there have been periods when wages grew more slowly than did productivity. The relationship between productivity growth and wage growth was more closely aligned in some countries such as in the UK (0.9% and 0.8% respectively), Korea (2.9% and 2.1%) and Singapore (1.8% and 1.3%).x ]

Productivity measures currently available also do not meet the test of being a widely-reported and well understood measure. As such, it did not feature prominently in the deliberations of the Panel. But there is merit in the idea of using productivity growth as a benchmark for wage growth in general. It can be investigated further for adoption in the future.

4.2.3 Approaches in Other Jurisdictions

Several Canadian and international jurisdictions have adopted economic measures as adjustment mechanisms.

  • Alberta: Minimum wage is adjusted annually and is based on the average of changes to the CPI and average weekly earnings.
  • Saskatchewan: Adjustments are not legislated however, the Government intends to adjust minimum wage based on the average change in CPI and the average hourly wages for the previous year.
  • Nova Scotia: Minimum wage was benchmarked to the LICO in 2012. Minimum wage is adjusted annually based on changes to CPI for Canada.
  • Yukon: Minimum wage is adjusted annually based on changes to the CPI.

Recent wage consultations in British Columbia have also indicated general stakeholder agreement that once minimum wage has been raised to the desired rate, that future increases should be linked to economic indicators such as the Consumer Price Index, to ensure that such increases happen in a relatively incremental, predictable and depoliticized manner.xi ]

4.2.4 Public Consultation

The majority of groups and individuals who made submissions to the Panel were in favour of using an economic indicator for adjustments of the minimum wage. They indicated that this would be a fair, predictable, and regular means of adjusting the minimum wage. Inflation/CPI was the most commonly suggested indicator, either on its own or in combination with another measure. Employer, labour and community groups found this to be an easily understood metric that addressed concerns about minimum wages falling behind increases in the cost of living.

4.2.5 Recommendations

The proposed mechanisms of adjustments that are outlined in the following sections were generally uncontentious and recommended by all as a means for future, regular, transparent increases to the minimum wage rate.

However, as noted previously, there was disagreement on the Panel as to whether the mandate of the Panel included recommending a change or increase to the minimum wage rate in Ontario. The answer to this question leads to very different approaches to discussing the use of economic indicators that would have the effect of mandating a specific rate.

I recognize that any discussion of a mechanism to change the minimum wage rate is partially incomplete without a consideration of what the baseline rate is, or in other words, what the rate that is being altered is. Those who feel that the baseline rate is inadequate propose additional mechanisms for raising the current rate, in addition to concurring with the proposed mechanisms for future adjustments.

Accordingly, this section will first set out the largely uncontentious mechanisms for continuous, regular adjustments to the minimum wage rate, without addressing mechanisms or arguments that would result in an additional increase to the current minimum wage rates. Arguments regarding the latter will be addressed in a subsequent section, entitled Setting the Minimum Wage Rate Level.

The more limited mandate of the Panel can be misinterpreted as biasing the process towards business interests. In response, I wish to clarify that this report is not taking any stance in favour or against a minimum wage increase. Rather, it addresses recommendations for regular adjustments. Such adjustments can be applied to any baseline minimum wage rate, whatever the level at which the Government chooses to set it.

In comparing the above options, it is clear that changes in many of the various measures are themselves tied to or in part based on the CPI. In addition, the CPI has been used successfully as an adjustment measure in several jurisdictions, including the four Canadian provinces and territories that have tied their minimum wage increases to an economic indicator.

Given that the CPI has the potential to vary by significant amounts from year to year, the Government may wish to consider whether to fully index to the CPI, or to implement a system of partial indexation, with a cap on the level by which the minimum wage can increase.

Recommendation #1: Minimum wages should be revised annually by a percentage equal to the percent change in the Ontario Consumer Price Index.

4.3 Frequency of Revisions to the Minimum Wage

The Consultation Paper posed the following questions:

"How often should Ontario review the minimum wage?"

"How much notice should Ontario provide to employers and employees prior to the implementation of any change in the minimum wage?"

In determining the frequency with which the minimum wage should be revised, employee and employer considerations should be balanced. Frequent revisions permit gradual increases in the minimum wage from year to year, and are favoured by minimum wage earners. Less frequent adjustments are simpler administratively, but result in larger jumps in the minimum wage. Employer representatives cited administrative concerns when comparing different frequency options, but at the same time, indicated that larger jumps in minimum wage, which are a likelihood when moving to longer revisions periods, also imposed costs.

The use of an economic indicator means that employers and employees are on general notice of an annual increase to the minimum wage rate, and can keep abreast of changes in the CPI and average wages in order to estimate what the rate change will be in advance of any official announcements. Changes in economic indicators for the previous period will need to be calculated by the appropriate body before they can be officially announced. As the minimum wage will always be lagging behind current inflation levels, the shortest period possible will minimize any discrepancies between actual inflation rates and minimum wage adjustments.

Business groups generally requested that minimum wage revisions should not take effect in the middle of a "season". For agriculture and a host of other businesses that operate through the summer, a change coming into effect on July 1 places an administrative burden at the busiest time of their annual cycle. Similarly, an effective date of January 1 for minimum wage changes occurs in the middle of the winter season. For these reasons the Panel was of the opinion that an effective date for any changes to the minimum wage could be April 1. This date also coincides with the start of the Government's fiscal year.

Other Jurisdictions

Jurisdictions that use economic indicators as a means of adjustment (Alberta, Nova Scotia and the Yukon) revise the minimum wage annually. Alberta typically gives a notice period of 3 months. In Nova Scotia, a Minimum Wage Review Committee, established in 2004, conducts an annual review of the minimum wage, and prepares a report with recommendations regarding its continued application. xii ] Similarly, the Employment Standards Board of Prince Edward Island meets annually to review and recommend changes to the minimum wage. The Board considers a number of factors, such as the provincial economic and social effects of minimum wage rates, increases in the cost of living, wages in other jurisdictions, and economic conditions of the province. xiii ]

Public Consultation

Employee and employer groups and submissions recommended review periods of one and two years respectively. While employer groups indicated that annual changes would impose additional administrative costs, no information or statistics regarding these additional costs or the differences in costs between a one and two year revision period were presented to the Panel. Recommended notice periods generally ranged from 2-6 months from all groups and presenters.

In balancing employer and employee considerations, an annual revision of the minimum wage is appropriate. This reduces the lagging of minimum wages behind other wages, corresponds with annual change indicators, and minimizes the larger minimum wage increases that would be more likely with a two or three year revision period. Furthermore, annual increases are in step with the other Canadian jurisdictions who have tied their minimum wage increases to economic indicators.

Recommendation #2: Minimum wages should be revised annually, and a minimum of four months' notice of any wage change should be provided. The effective date of minimum wage changes should be April 1 of the following year. This would result in notification by December 1 of the previous year.

4.4 Mechanism for Revisions

The Consultation Paper posed the following questions:

"Are there any other mechanisms Ontario could consider implementing to determine future adjustments to the minimum wage?"

"Are there any other types of review processes Ontario should consider as a mechanism to use in establishing minimum wage rates in future?"

In the past, the Ontario Government has taken an ad hoc approach to determining minimum wage increases. This has led to an irregular pattern of increases and freezes since its inception.

Implementing annual increases in accordance with the economic indicator formula will eliminate this ad-hoc approach and irregularity. In addition, a formal review should be conducted on a regular basis to review the annual increases formula and process, and to evaluate the current base wage. A formal review can thus address the relative inflexibility of the automatic increases.

Recommendation #3: The Government should undertake a full review of the minimum wage rate and the revision process every five years. This review should be conducted by a panel of stakeholders and a neutral chair. The mandate of this Panel would be to review Ontario's past experience with minimum wage revisions within the context of Ontario's social and economic progress and prevailing practices in other jurisdictions to recommend changes that could better serve Ontario's future needs.

In the process of writing this report, the Panel was required to gather substantial information in a very short period. This information seeking process was difficult and in some instances, inadequate. Given that the mandate of the full review panel will be broader in scope, substantial research will be needed to afford the panel the appropriate information and resources needed to make recommendations.

Other jurisdictions have substantial research programs to support their reviews of the minimum wage. In the United Kingdom, the UK Low Pay Commission engages in extensive, ongoing research and consultation. It examines not only minimum wages but low wages in general to have a fully informed picture of the working poor. It commissions research projects, analyses relevant data, conducts surveys with businesses and stakeholders. It actively consults with employers, workers, and their representatives, via fact-finding visits and written and oral submissions. A similar program would be a significant aid to any future review panels.

Recommendation #4: To aid the full review process, and to ensure that Ontario's minimum wage policies are in step with the needs of its citizens, the Government should establish an ongoing research program for data and information gathering and its subsequent analysis to address policy-relevant minimum wage issues.

4.5 Setting the Level of the Minimum Wage

As previously discussed, the Panel was not asked to consider recommending a level for the minimum wage. Rather, it was tasked with giving advice on how the minimum wage rate should be adjusted. Notwithstanding, the Panel heard repeatedly from the public on the topic of a specific level of minimum wage. It was also the topic of discussion within the Panel on multiple occasions. Panel members generally diverged in their opinions on the issue of a specific wage level. These disagreements notwithstanding, both the public input as well as the Panel's own deliberations have yielded important insights that are summarized below. Some of these ideas can be useful pointers for the Government as it sets about crafting a minimum wage policy for Ontario while other issues can contribute to a research agenda for the development of minimum wage policy in the future. In this spirit, these issues are summarized here.

Retroactive Adjustment to 2010

One of the issues that the Panel deliberated over is the question of the baseline for minimum wages in Ontario to which further revisions should be applied. The Ontario minimum wage rate has not been revised since 2010 when it was at $10.25 an hour. Over that period of time, changes in the CPI and inflation have eroded the purchasing power of the minimum wage by approximately 6.7% if we apply the CPI measure for Ontario. Thus, an inflation adjustment to the minimum wage could be applied retroactively to the 2010 level to account for the increase in the cost of living since then. Some Panel members expressed strong support for this idea. Some submissions from the public also supported this notion. Another argument for applying inflation adjustment going back to 2010 would be the movement of other wages that are similar to the minimum wage. To maintain equity, it was argued that minimum wage should be allowed to rise in proportion if other wages close to the minimum wage went up since 2010. According to data supplied by the Ministry of Finance, wages between $10.26 and $12.30 an hour (between the minimum wage and up to 20% above the minimum wage) rose only modestly between 2010 and 2013.

Number and Hourly Wages of Workers Earning $10.26 to $12.30
Annual Average Number Average Median
2010 525,400 11.27 11.00
2011 593,100 11.24 11.00
2012 589,200 11.27 11.00
2013a ] 597,900 11.29 11.20

a ] year to date Jan to Oct

Source: MOF calculations using Statistics Canada's Labour Force Survey

On the other hand, a number of public submissions were opposed to any retroactive adjustment. The argument given was that a series of pre-determined increases in the years prior to 2010 had resulted in a relatively high minimum wage and as such it ought to be revised going forward only rather than retroactively. Some Panel members also expressed support for this idea. Employer organizations expressed concern over facing a large step increase in the minimum wage, which could burden businesses with a sudden increase in costs that could harm employment in the near term and new investments and job creation in the longer term.

This report makes no recommendation regarding retroactive adjustment for two reasons. First, any such recommendation would lead to a specific wage level, a task that exceeded the mandate of this Panel. The specific level is to be determined by the Government. Second, there was no consensus within the Panel on this issue.

Cost of Living as a Basis for Minimum Wage Setting

The majority of presentations and submissions to the Panel focused on the inadequacy of the current minimum wage to generate an income that would allow people to escape poverty. Several Panel members expressed the belief that the Panel was established, at least in part, because the current Government has announced a poverty reduction strategy and has clearly and publicly recognized that many minimum wage earners are living below the poverty line. Thus, a number of arguments were made by stakeholders and Panel members in favour of both a mechanism to raise the current level of the minimum wage as well as to adjust the minimum wage on a regular, ongoing basis. Common to these presentations and submissions was the recommendation that the minimum wage rate should be tied to a low income measure or a measure of average or median wages. This anchoring was endorsed for a number of economic, social policy and political reasons by many public submissions and some Panel members. However, these proposals go beyond simply making an argument for an increase. Rather, they link directly to measures that would have the effect of setting a specific level for the minimum wage. For example, the most commonly cited figure was a rate 10% above the pre-tax Low Income Measure (LIM), or approximately $14 dollars. Similarly, tying the minimum wage rate to a certain percentage of median or average wages would dictate a specific rate. The average hourly wage for those 15 years and over in Ontario is $24.90.xiv ] 60% of this figure would be $14.94.

While setting a specific rate is considered beyond the scope of this Panel's terms of reference, this is an important issue, which could be addressed within the Government's overall anti-poverty strategy. The Government could consider the extent to which it is going to use minimum wages to address the problems of the working poor. Tying the minimum wage to a low-income measure would raise household incomes significantly where the wage earners (sole or multiple within the household) hold a minimum wage job. It would not address poverty issues for households where no members are employed at the minimum wage. The Government will need to consider whether it wishes to implement a rate change that would bring full-time, full year minimum wage workers above the poverty line. Should it choose to do so, a level above the LIM was strongly endorsed by stakeholders, policy groups, and by several members of the Panel. For the record, these proposals were strongly opposed by business groups, individuals and some other Panel members. The main points of the debate for and against the use of low income or average wage measures to set a level for the minimum wage are summarized below.

4.5.1 Arguments for the use of cost of living, low income measures, or average wages as economic indicators for minimum wage setting

There was a strong articulation of the view that working poverty, increased cost of living, increased inequality, and the increasing trend toward precarious work and a low-wage economy should be accorded significant weight in determining a mechanism for revising the minimum wage. Research and figures presented supported an increasing trend towards precarious and low wage work. As noted in Section 2, the percentage of employees earning minimum wage has risen significantly since 2003, and the number of minimum wage workers who are under 18 and over 35 have also risen significantly. More and more workers are relying upon minimum wage jobs for support, and an increasing number of these workers are women and racialized minorities.xv ] Half of all workers in the GTA and Hamilton area experience precarity in their employment patterns, resulting in irregular and often inadequate hours of work.xvi ] The category of working poor, defined as individuals who have after tax earnings below the LIM, earn at least $3000 per year, are between 18-64, and are non-students living independently is rising, increasing 24% between 2000 and 2005. xvii ]

Accordingly, the use of low income measures or average wages as economic indicators for minimum wage have been proposed, in order to better link minimum wages to liveable wages and/or wage changes of higher income earners.

The Ontario Government's Poverty Reduction Strategy uses the LIM After Tax as its target indicator for measuring and tracking progress.xviii ] Thus, using this as a metric supports consistency. Looking at this measure, it is clear that full-time, full year minimum wages are insufficient for supporting a household, leading to a situation of working poverty. Working full-time (35 hours a week) and full-year (50 weeks a year), a worker earns $17,937.50 before taxes. This falls below Ontario's LIM for 2011, which is $23,690.xix ] As the LIM is annexed annually to cost of living measures, this would have the result of automatically indexing the minimum wage.xx ]

Using the Average Industrial Wage as an economic indicator would result in a similar figure. Historically and in various jurisdictions, the minimum wage has been between 40 and 60% of the average industrial wage. Proponents of average wages as an indicator suggest setting the minimum wage at 60% of the average industrial wage. This is a policy goal in a number of European nations.xxi ] This would result in a minimum wage of approximately $14.50.

Avoiding the negatives of a low-wage economy was proposed as a significant factor in tying the minimum wage to one of these indicators. Beyond any positive impacts on the incomes of lower-wage earners and their families, minimum wages were argued to play a significant role in regulating the labour market, income distribution, and equity for all and in particular, certain groups (women, racialized workers, and persons with disabilities). The economic data reviewed in Section 3 supports a reduction in low wage inequality from increasing minimum wages.

The minimum wage has been proposed as one of a group of distinct areas that can have an impact on poverty reduction. Other areas include introducing housing benefits, reforming social assistance, supporting transitions to work, raising the Ontario Child Benefit, addressing employment standards, affordable housing, early learning, and affordable education.xxii ] From a social policy perspective, while raising minimum wages is not the only tool for addressing low wages, it would help to alleviate the strain on a number of social and community services, such as food banks, health initiatives, and other programs. The social and economic costs of a low wage economy, including significant health costs, were identified as negatives that could be alleviated through an increase. Furthermore, several submissions noted the trend in Government policy as being increasingly geared toward moving people from social assistance into employment. In order for those strategies to be most effective, employment and wages must be of sufficient quality to provide a route out of poverty.

Proponents of using these measures as an economic indicator recommend a phase of adjustment over a period of several years. One such proposal is to increase the minimum wage by 75 cents on January 1, 2014, with increases in 75 cent increments every six months until the minimum wage reaches $14.00 on January 1, 2016. One final increment of 75 cents would adjust for lost purchasing power, raising the minimum wage to $14.75 on July 1, 2016, at which point it would be adjusted annually by CPI.

In further support of the use of these economic indicators, it was noted that given the Ontario Government's reliance on customer spending to boost economic growth, increasing the minimum wage would bolster that strategy by increasing the purchasing power of half a million workers. These workers, in turn, are more likely to spend their money in their local communities. Additional benefits would include increased productivity, well-being, lower levels of absenteeism, and lower levels of turnover.

In addressing the concerns raised by business groups, tax relief measures were proposed as a way to ensure that those that could afford minimum wage increases (large corporations) could provide those without negative impact to smaller, local businesses. Proponents also argued for an alternative view to classical economic theory, such as economic theories of wage-led growth. These theories posit that consumer spending has the greatest potential to accelerate economic recovery, with significant positive impacts on leveraging additional spending capacity on top of the extra income resulting from higher wages.xxiii ] These theories also disputed the negative impacts on employment and business costs purported by business representatives.

4.5.2 Arguments against the use of cost of living/low income measures as economic indicators for minimum wage setting

Those who were not in favour of using the cost of living, low income or average wage measures as economic indicators for the setting of the minimum wage largely focused on the impact of minimum wage on businesses. Costs to businesses and particular industries were the most frequently cited barriers to using a cost of living or low income measure as an minimum wage indicator. Presenters were concerned about Ontario's ability to compete in a global labour market, and the relative positioning of its wages in comparison to other Canadian jurisdictions and the United States.

Concerns were also expressed regarding the impact of the higher minimum wage rate resulting from tying minimum wage to LIM or average wages on job loss. Reference was made to studies showing that an increase in the minimum wage would have an impact on teen employment, such as Morley Gunderson's 2007 paper.xxiv ] It should be noted that there was little evidence presented of specific figures relating to job loss from the previous increases to the minimum wage, which increased significantly from 2004 to 2010. Rather, many presenters cited the fact that the cost of labour was their most significant production or business cost in support of their arguments of the effects of a minimum wage increase. In line with these arguments, Gunderson (2007) noted that payroll cost from a 25% increase in the minimum wage would have a lesser effect when amortized over all paid workers. However, he also noted that payroll cost increases are significantly higher for small firms, and in the accommodation, food service and retail industries. Presenters predicted that a wage increase would lead to the loss of hours and jobs, with particularly significant impacts on the retail, hospitality and leisure sectors.

While some presenters acknowledged that the current minimum wage rates were below current LIM measures, and recognized the need to reduce poverty and raise the standard of living in Ontario, they were concerned with placing this burden disproportionately on employers, and predominantly, those in specific sectors such as the retail, hospitality and leisure sectors.

Proponents of a rate level freeze also questioned the link between minimum wages and poverty.xxv ] They argued that other more direct tools to address the working poor that did not impact business outcomes would be more beneficial and should be used first before turning to the minimum wage as an anti-poverty tool. Such recommendations included the following integrative mechanisms:

  • affordable housing
  • child care support
  • affordable education
  • food bank support
  • tax reductions or exemptions for low income workers.
  • long term care
  • re-training programs and other active labour market programs.

4.6 Conclusion

Most experts agree that a multi-pronged and multi-level process is needed to address and combat poverty, a task that cannot be addressed solely by increases to the minimum wage rate alone. It is possible for minimum wages to play a role, but the extent of that role will be dictated by the Government's policy considerations. Research and conclusions on the link between poverty and minimum wages are also highly contentious, with various arguments for and against a link. For this reason, any linkage between the minimum wage and poverty needs to be situated within the context of various other measures to address poverty, including but not limited to changes to taxation, social policy, housing, and job/skills training, etc. The minimum wage can be one of a set of tools used to address poverty, but the Government must assess the degree to which it is used in conjunction with other strategies. Using it as one of a set of tools would alleviate concerns with disproportionate burden on employers or other groups as well as provide a stronger framework for addressing low wages and poverty in Ontario.

For example, the implications of linking the minimum wage to low income measures on the use of minimum wage jobs as ports of entry (youth) and re-entry (older workers) into the workforce must be weighed carefully. It is unreasonable to assume that increasing the minimum wage, especially by a significant step increase, will have no economic or socio-economic impact on other categories of individuals or workers in Ontario. People working at minimum wage and supporting their household as the only wage earner in the family constitute only 11.4% of minimum wage workforce. The majority of minimum wage earners, more than 60%, are youth (see Section 2) and most research studies find that the disemployment effects of rising minimum wages are the greatest for youth (see Section 3). Thus, any minimum wage increases should be combined with youth and re-entry employment strategies to counteract any negative impacts. Similar approaches must be undertaken in respect of small businesses, i.e., combining minimum wage increases with other initiatives to help businesses be more productive and competitive.

Endnotes

iii ] Carswell. (2012 –Release 2). Employment Standards Act, 2000: Policy and Interpretation Manual, Chapter 13: Minimum Wage.

iv ] Statistics Canada

v ] Nova Scotia Ministry of Labour and Advanced Education, Annual Report to the Minister of the Minimum Wage Review Committee (January 4, 2013).

vi ] Statistics Canada, Low Income Lines, 2011-2012.

vii ] Nova Scotia Ministry of Labour and Advanced Education, Annual Report to the Minister of the Minimum Wage Review Committee (January 4, 2013).

viii ] Statistics Canada, Productivity Measures and Related Variables – National and Provincial (Annual).

ix ] Statistics Canada, Productivity Measures and Related Variables – National and Provincial (Annual).

x ] Productivity and Wage Growth in Singapore, 2011 [PDF / 190 Kb].

xi ] Government of British Columbia (March, 2011), Summary Report on Employment Standards Stakeholder Engagement Process. Ministry of Labour, Citizens' Services and Open Government.

xii ] Nova Scotia Ministry of Labour and Advanced Education, Annual Report to the Minister of the Minimum Wage Review Committee (January 4, 2013) [PDF / 300 Kb].

xiii ] Battle, K. (April 2011). Restoring Minimum Wages in Canada. Caledon Institute of Social Policy.

xiv ] Statistics Canada (November 2013). Average hourly wages of employees by selected characteristics and occupation, unadjusted data, by province (monthly)(Ontario).

xv ] Block, S (2013). Who is Working for the Minimum Wage in Ontario. (Toronto: Wellesley Institute)

xvi ] Lewchuck, W. (2013). It's more than Poverty: Employment Precarity and Househould Well-Being (Toronto: United Way of Toronto).

xvii ] Stapleton, J. Murphy, B. & Xing, Y (February 2012), Summary Report- The Working Poor in the Toronto Region: Who they are, where they live, and how trends are changing. The Metcalf Foundation.

xviii ] Government of Ontario (2012). Breaking the Cycle: The Fourth Progress Report. Ontario’s Poverty Reduction Strategy 2012 Annual Report.

xix ] Hennessy, T., Tiessen, K & Yalnizyan, A. (2013). Making Every Job a Good Job: A Benchmark for Setting Ontario's Minimum Wage. Canadian Centre for Policy Alternatives.

xx ] Battle, K. (April 2011). Restoring Minimum Wages in Canada. Caledon Institute of Social Policy.

xxi ] Eldring and Alsos (2012),European Minimum Wage: A Nordic Outlook, (Norway: FAFO)

xxii ] 25 in 5 Network for Poverty Reduction (December 2011). Common Ground: A Strategy for Moving Forward on Poverty Reduction. Third Annual Progress Report on Poverty Reduction in Ontario.

xxiii ] Aaronson, D., Agarwal, S. & French, E. (2012). The Spending and Debt Response to Minimum Wage Hikes, American Economic Review, 102(7), p. 3111-3139.

xxiv ] Gunderson, M. (2007). Minimum wages: issues and options for Ontario. Government of Ontario, 2007.

xxv ] Gunderson, M. (2007). Minimum wages: issues and options for Ontario. Government of Ontario, 2007.

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