BUSINESS

Ontario Minimum Wage Increase: History Suggests Minimum Wage Hikes Don’t Kill The Job Market

Backlash usually comes from employers.

07/04/2017 16:55 EDT | Updated 07/04/2017 17:18 EDT
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Ontario and Alberta are both moving to a $15 per hour minimum wage. The potential Green-NDP government in British Columbia has plans to do the same. Such increases tend to churn up misguided discussions on social media of the possible economic impact on employment, wages and consumer prices.

"The backlash is all generated by employers," said Mark Thompson, professor emeritus of industrial relations at the Sauder School of Business at the University of British Columbia who chaired a commission on employment standards in the '90s.

"When the minimum wage goes up here in British Columbia, the restaurant industry and the small business people are going to trot someone out who says they can't make it under these conditions. But you don't hear about the ones that are making it under the minimum wage."

Data shows it does have an effect on one demographic: young people.

A 10-per-cent increase in the minimum wage creates a three- to six-per-cent decrease in youth employment, according to Morley Gunderson, professor emeritus of economics at the University of Toronto.

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But is there an actual impact on overall employment?

Analysis shows that minimum wage hikes have had little impact on unemployment trends. In recent years, each province's unemployment rate has followed similar patterns, even though the timing of their minimum wage increases differed significantly.

From 2005 to 2015, Alberta increased its minimum wage eight times, Ontario hiked the rate seven times, and British Columbia raised it three times.

Albert Van Santvoort/HuffPost Canada
Months when the minimum wage was increased in Alberta, British Columbia, Ontario and Quebec from 2005 to 2015.

Let's look at how that impacted each province:

In Alberta, three months after a minimum-wage increase, the unemployment rate would rise 0.1 per cent. And six months after such a hike, it would fall to roughly the same jobless rate as the day the increase was made.

Albert Van Santvoort/HuffPost Canada
Unemployment rate in Alberta compared to increases in provincial minimum wage.

In Ontario, from 2005 to 2014, the unemployment rate continuously dropped through the six-month period after each minimum wage increase. In 2007, 2008 and 2014, most of the job gain was experienced in the first three months.

Albert Van Santvoort/HuffPost Canada
Unemployment rate in Ontario compared to increases in provincial minimum wage.

Albert Van Santvoort/HuffPost Canada
Change in unemployment rate three months and six months after minimum wage increase in Ontario.

Perhaps British Columbia provides the best evidence for the lack of causation between minimum wage increases and unemployment. While B.C. only increased its minimum wage three times — contrasting the increased frequency and timing of increases in Alberta and Ontario — it had basically the same trend in the unemployment rate.

This suggests that the country follows the same unemployment trend regardless of each province's minimum wage changes.

Albert Van Santvoort/HuffPost Canada
Unemployment rate in B.C. compared to increases in provincial minimum wage.

"The effects on employment of increasing minimum wage from 10 to 15 per cent are negligible," said Thompson. "These things vary a little bit depending on the study, but if you look at the consensus there's hardly any effect on employment overall and some effect on teenage employment."

In fact, the Great Recession of 2008-09 was far and away a more important factor in Canada's job growth in recent years.

Ontario, B.C. and Alberta all showed moderate fluctuations until 2009, when they experienced a large spike in unemployment resulting from the 2008 recession. By 2012, each province's unemployment rate dropped significantly from the 2009 high, but had not yet reached their pre-recession levels. This would suggest that a minimum wage increase has either little or undeterminable effect on jobs.

Albert Van Santvoort/HuffPost Canada
Unemployment rate for Alberta, British Columbia, Ontario and Quebec from 2005 to 2015.

There is, however, concern around the effect of a larger percentage increase in the minimum wage. The Ontario minimum wage is set to jump by 20 per cent next year. Such a large raise implemented too fast and mandated too quickly could be difficult for businesses to handle.

"That's very unusual. Most jurisdictions have been much smaller than that, around five per cent," said Gunderson. "Twenty per cent is a big one, and I think the bigger ones are more likely to have an adverse employment effect."

Minimum wage employment is concentrated in a few industries including personal services, hospitality and restaurants, added Thompson.

He has doubts about how much a minimum wage increase impacts big employers in these industries. In Fort McMurray, Alta., for example, McDonald's pays its employees far above the minimum rate. With so much competition for labour, McDonald's has no choice but to offer higher wages in order to retain and attract employees.

"When things were booming in Fort McMurray, unskilled work paid very well," said Thompson. "People were making a $1,000 a week for driving a pick-up. So that filtered down."

Mark Blinch / Reuters
Service industries like McDonald's have had to increase wages in places like Fort McMurray, Alta. in order to attract and retain workers.

While less studied than the effects on unemployment, there is some evidence that increasing minimum wage can have an impact on overall pay, according to both Gunderson and Thompson.

If people earning the minimum wage receive a raise, then employees who were earning more than that will also demand a monetary boost, according to Thompson.

Others fear that the rising cost of labour will ultimately be passed onto the consumer, rather than absorbed by the business. A 2016 study from the University of Washington, one year after Seattle began moving toward a $15 minimum wage standard, found "little or no evidence" of price increases in the city or surrounding area.

But two more studies released last week muddy the waters.

In an updated study, the same team from the University of Washington suggested Seattle's wage hike (from $11 to $13 over 2015-16) led to a cut in hours for employees, and a loss of $125 per month.

However, that report was not peer-reviewed, and does not take into account large-scale employers with multiple locations. The exclusion covers as much as 40 per cent of the city's workforce, noted Josh Hoxie of the Institute for Policy Studies.

"The funny thing about the minimum wage is whenever there's talk of it going up, I get asked 'what about employment,'" said Thompson. "The story I'm waiting to see is what happens to the person that received a minimum wage increase. Where do they spend it? What kind of a difference does it make?"

A different study from the University of California, Berkeley released in June points to some encouraging results. It found that a 10-per-cent increase to the minimum wage had no discernible impact on unemployment in the Seattle area — and in fact, created positive effects on wages and employers' ability to hire staff.

That report also highlighted the city's lowest unemployment rate since 2008, currently at 3.1 per cent.