By Aaron Aerts and Laura Jones
Published in the Financial Post December 21, 2017
What the Ontario government is selling as the best thing under voters’ Christmas trees is actually a giant lump of coal for small business owners scrambling to make payroll next year.
The Grinch came early in 2017, as the government announced an unprecedented 32 per cent increase to the minimum wage to be implemented over just 15 months (starting with a jump to $14/hour come Jan. 1, 2018). The announcement was a complete about-face from the stable, predictable and apolitical model business owners had come to expect since the government indexed the minimum wage to inflation in 2013. What’s worse, the move came without any research or understanding of the economic impact such a sharp increase would have on the provincial economy.
If increasing wages had no other impact than to give everyone currently making the $11.60 minimum a raise — no change in hours worked, no change in number of jobs, no change in costs — that would be something we could all get behind. But not even Santa can deliver that fantasy.
To fill the gap left by the province’s lack of economic analysis, we at the Canadian Federation of Independent Business is conducting that research. Over the next 18 months, CFIB will track a cohort of businesses to determine the consequences of the hike. In the first survey, which went out in mid-December, we asked what changes businesses have already made to prepare for the coming increase. The results are sobering; managing such a large increase in costs clearly has business owners worried.
Before the increase has even kicked in, business owners have been forced to increase prices and delay or eliminate hiring plans, particularly of young workers. As one business owner commented: “Won’t be able to hire the same number of students next year — we normally hire eight or more; this year we are thinking maybe two.” Another says: “We have decided not to hire students coming out of university or college but focus more on experienced workers over the age of 40.” Yet another: “We will be shortening our hours of operation and decreasing the number of student workers. There will be less customer service available.”
Most Canadians – and especially new Canadians – get their first job working for a small business. In fact, small- and medium-sized businesses employ 90.3 per cent of Canadians working in the private sector.
While business owners want to provide opportunities for people, especially for those just starting their careers, a $15/hour minimum wage makes it challenging. Hiring young or inexperienced workers means providing significant training – a cost in both time and money that small businesses owners say they can no longer afford. The first steps of the career ladder are in the greatest danger of being lost, to great consequence for Ontario’s next generation of workers.
The negative impacts will ripple throughout the economy: layoffs, reduced hours and fewer opportunities for young workers; higher prices for consumers; increased automation; and reduced investment. Pretending these impacts don’t exist is fa-la-la-la-la economics.
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While Ontario is set on taking the plunge headlong toward $15, its story can serve as an example to other provinces who’ve yet to leap. There is a real opportunity to rethink the way we address poverty. A $15 minimum wage’s goals are noble, but there are just too many negative consequences for it to be an effective tool.
We need to approach poverty with a scalpel, not a sledgehammer, and focus our attention on those who need it most. In such cases, we should be generous. Expanding such programs as the Working Income Tax Credit, providing more targeted social services or additional tax rebates to low-income families, or providing new training programs would go a long way to help without risking thousands of jobs. That could ensure a Merry Christmas for the whole economy.
Aaron Aerts is an economist with the Canadian Federation of Independent Business. Laura Jones is executive vice-president of the Canadian Federation of Independent Business.
This story was originally published in the Financial Post.