Ontario’s $15 minimum wage will bring in more jobs and raise incomes | Gavia Baker-Whit

Canada’s plans to hike its minimum wage to $15 an hour (from $11.60) will make it one of the world’s highest in just a few years, now that Costa Rica and South Africa are beginning to move to $15 as well. By 2030, Denmark, Belgium, Netherlands, Spain, Sweden, and Austria have all pledged to increase their minimum wages to $15, as well. With the growing number of high-income countries moving to a minimum wage, it seems that, more and more, a minimum wage is no longer a means of insulating low-income workers from life’s everyday pressures but a means of stemming income inequality, contributing to growth, and encouraging job creation.

This is a welcome development, but significant barriers remain. In general, emerging economies face stronger barriers to setting a minimum wage than developed economies, partly because a minimum wage is seen as a government mandate, which can be more effective in reducing overall inequality than a price or income tax. Much of the labour market in emerging economies is still dominated by low-skilled and low-productivity jobs, as workers are poorly compensated relative to the value of their work.

The minimum wage also has a degree of “national character”. In a country where the official minimum wage is below the median and where one is under pressure, a so-called “popular minimum wage” – in which the minimum wage rises faster than workers’ incomes – could attract political support as a measure of fairness to workers and as a “revenue neutral” budgeting measure that avoids affecting the poor disproportionately.

Ontario is following other provinces such as Alberta in addressing the issue of labour market vulnerability by moving to a $15 minimum wage, which will be effective in January, to take effect in April 2020. But Ontario has gone much further by committing to increase the minimum wage to $15 in 2022, while some other provinces are still thinking about the effect of a $15 minimum wage on its economy and individual workers. The result is that a $15 minimum wage will first be implemented in Ontario and then gradually rolled out to the other provinces, and less aggressively in some of the other provinces.

Ontario has also taken steps to create a “living wage” – the $15 minimum wage and its $14.60 “living wage”. Ontario will require its employers to pay a $15 minimum wage to any employees who work more than 40 hours per week, and higher wages for temporary workers, apprentices, and other vulnerable groups. Companies that do not adopt the $15 minimum wage will have to pay the $14.60 “living wage” to their employees. And companies that still can afford a $15 minimum wage to all workers may still allow their employee to choose between the $15 and the $14.60 minimum wage.

This provides yet another important measure to help vulnerable workers. To start with, workers whose wages do not meet the $15 minimum wage will have some flexibility in choosing between higher wages if their income actually increases or more flexibility in choosing between a higher wage (or other benefits) if they experience a downturn in their income or family circumstances. This initiative, which will be in place at all corporations with 50 or more employees, is especially useful for women workers who are disproportionately concentrated in low-wage sectors. The living wage may give an added boost to the value of self-employment, since firms will be forced to provide additional benefits and protections that workers may not currently receive. And it may also give low-income workers some flexibility in choosing their own terms for leaving low-wage jobs and trying to move to a more profitable one.

What’s more, providing a “living wage” as part of the minimum wage will expose employers to the reality of the scale of the problems that low-wage workers face. Also, by raising the minimum wage, Ontario can fill the gap in social insurance that it has left behind many low-wage workers in the provincial health care system. For their own health, employers will benefit when workers are better-protected and have more job security, thereby increasing the productivity of the overall workforce and reducing taxpayer-funded social assistance.

The Ontario minimum wage hike, unlike most other wages globally, also contains a relatively progressive component. But more than 65% of the increase, after adjustment for inflation, will go to the lowest-income earners. Still, even small increases in workers’ wages are likely to boost consumption and thus create more jobs in a labour market that is arguably operating in a state of labour underutilisation.

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