There seems to be some confusion at Queen’s Park about the health of the Ontario economy. In a recent statement, the Minister of Finance, Mr. Charles Sousa suggested that the implementation of a 32% minimum-wage hike in the province by 2019 could possibly boost employment in the province as he claims it has in San Francisco and Seattle.
Now San Francisco, Seattle and Ontario do have a few things in common. In all three jurisdictions the predominant language is English and they all have Starbucks. Moreover, Seattle and San Francisco have both passed laws increasing their minimum wages and Ontario is planning to follow in their footsteps. In Seattle, the minimum wage law calls for wages of small employers to increase by an average of 8% per annum from $11 an hour to $15 between 2015 and 2019. In San Francisco the minimum wage rises from $12 in 2015 to $15 in 2018, an average gain of 7%
Although the three jurisdictions have a few things in common, they definitely don’t have comparable economic health. Fuelled by the burgeoning growth of Silicon Valley, annual employment growth in San Francisco has averaged 3.5% over the past five years and the metro area’s unemployment rate has fallen to a seven-year low of 3%.
In Seattle, home to Boeing, Microsoft, Amazon and Weyerhauser, annual job growth has averaged 3% since 2011 while its unemployment rate has remained under 4% since the beginning of the year.
Oh, we almost forgot Ontario. Despite strong gains in motor vehicle manufacturing driven by sustained demand in the United States, job growth in the province has averaged a mere 1% y/y over the past five years and the province’s unemployment rate, currently at 6.5%, has fallen below 6% only once in the past sixteen years.
Given the strong growth of employment and a concomitant sub-6% unemployment rate in Seattle and San Francisco over the past four years, most of the minimum-wage-hike advocates downplayed their negative impact on hiring and income.
However, a recent study by the University of Washington, the results of which were published by the National Bureau of Economic Research, has revealed that Seattle’s minimum wage increase in 2016 from $11 to $13 an hour caused hours worked by low-wage employees to shrink by 9%. This reduction in hours worked translated into a $125 drop in their monthly take home pay.
Despite San Francisco’s robust pattern of job growth, a recent study by the Harvard Business School focussing on the food service industry, the metro area’s largest employer of minimum wage workers, concluded that "a $1 dollar increase in the minimum wage led roughly to a 14% increase in closures of average (3.5 star) restaurants." Further, the study concluded that the restaurant industry will probably shrink in response to the further planned rise in minimum wages.
The fact that relatively modest minimum wage gains hurt hiring in two of the strongest metro area economies in the U.S. belies the above-noted comments by Ontario’s Minister of Finance that a larger (32%) wage gain will not have a proportionately more severe negative impact on hiring in a weaker economy such as Ontario.
This thesis is supported by soon-to-be-published research in the journal Contemporary Economic Policy by Professors Anindya Sen and Kathleen Rybczynski at the University of Waterloo. They have found a significant link between higher minimum wages and the reduced hiring of both teenagers and immigrants. Since approximately 60% of minimum wage earners are youths aged 15 to 24 and an estimated 19% are immigrants, there is very little doubt that the ability of these two groups to enter the labour force will be significantly impaired due to this higher minimum wage bar.
Coupled with Ontario’s existing cap-and-trade tax and its exceptionally high commercial and industrial hydro rates, the proposed hike in minimum wages will definitely raise the bar over which small businesses have to jump in order to do business in Ontario. At the same time, it will reduce employment opportunities for those who are just entering the job market and attempting to reach the first rung of the ladder of success.