02/20/2018 10:57 EST | Updated 02/20/2018 10:57 EST

Ontario Minimum Wage Hike Not Behind Job Losses, Scotiabank Study Finds

Though the losses were steep, they weren’t where they should have been if they had been caused by a minimum wage hike.

The Canadian Press/Lars Hagberg
Ontario's Premier Kathleen Wynne speaks at town hall Q&A at Queen's University in Kingston, Ont., Wed. Feb. 14. There is

Ever since news landed that Canada, and specifically Ontario, suffered major job losses in January, speculation has been rife that the province's substantial minimum wage hike was at least partly to blame.

But a new analysis from Scotiabank finds there isn't much to back up the notion that the wage hike pushed Ontario's job market off a cliff in the first month of 2018.

"There is little evidence to suggest that the 51,000 job losses in Ontario in January can be attributed to the New Year's Day increase in the provincial minimum wage," economist Juan Manuel Herrera wrote in a client note.

Watch: Protesters denounce Tim Hortons franchisees' response to minimum wage hike

Though the job losses were steep, they weren't where they should have been if they had been caused by a minimum wage hike.

Herrera noted that job losses were not concentrated in low-paying positions. The lowest-paying sector— food services and accommodation— actually saw an uptick in hiring of 2,200 positions. Meanwhile, the highest paying non-government sector — professional, scientific and technical services — saw the steepest drop in employment, down 2.1 per cent in a month.

Total hours worked fell from December to January, Herrera noted, but that's normal for this time of year, and the decline in hours is actually less than the average over the past 10 years. It's also less than other provinces experienced.

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But that doesn't necessarily mean there won't be any impact from the wage hike going forward, Herrera cautioned.

"While the January 1 increase was announced more than half a year prior to implementation, employers in the province may take several months to assess its impact on their bottom lines," he wrote.

Ontario hiked its minimum wage to $14 an hour from $11.60 at the start of January. The Liberal government is planning another hike to $15 an hour next year.

People leaving workforce

Since the hike, there have been news reports of businesses cutting staff or work hours in response to the wage hikes. And indeed the province's own Financial Accountability Office predicted a net loss of some 50,000 jobs as a result of the successive wage hikes to $15 an hour.

But in many ways, the minimum wage doesn't seem to have yet made its impact felt in the economy. For one thing, a higher minimum wage is supposed to attract more people into the labour force, but Ontario saw 55,000 people leave its labour force in January, including a fairly large number of youth aged 20 to 24.

That's the reason why its unemployment rate didn't spike despite the large job losses. It actually fell to 5.5 per cent in January, from 5.6 per cent in December.

Not necessarily the start of a downturn

The fact that Ontario's job losses weren't limited to areas impacted by the minimum wage hike suggests that maybe something else is behind the decrease. So is Ontario moving into an economic downturn?

Not necessarily, economists say. For one thing, one month's worth of data is hardly a trend, especially since StatsCan's Labour Force Survey has a fairly large margin of error of 55,000 jobs.

"Rather than signaling the start of an economic downturn, the 88,000 drop in (nationwide) employment in January simply casts doubt" on the Labour Force Survey, CIBC Capital Markets chief economist Avery Shenfeld wrote in a client note.

Given that the previous two months saw outsized job gains, the the large drop could simply be statistical "noise" compensating for the unlikely increase in employment in earlier months.

"Average the last three surveys, and we're left with employment growing at a roughly 20,000 monthly pace from October to January, which seems much more reflective of the state of the economy," he wrote.

Like Scotiabank's Herrera, Shenfeld noted that a significant number of people chose to leave the workforce in January.

"Recessions don't start with people deciding to stay home, they start with companies sending them home," Shenfeld wrote.

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