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Myths and realities about a $15 minimum wage

Over the past few months there has been a conversation to have Quebec’s minimum wage raised to $15 an hour. To fully grasp the effect of doing so, it is important to properly contextualize what that would mean within Quebec’s economic reality.

We all agree on the need to alleviate poverty and help those in need; however, an increase of nearly 40 per cent to the minimum wage, in a short time frame, is not the most effective solution for workers or employers.

In an economy like Quebec’s, where median annual business income is approximately $450,000, and nearly 75 per cent of businesses have fewer than 10 employees, a rapid and significant minimum wage hike would have a significant impact on the economy and employment.

Requiring business owners to increase the wages of their least experienced employees by nearly 40 per cent would put immense pressure on them to do the same for their more senior staff. With a profit margin of barely 3 per cent, for example, the proprietor of a regional inn, corner restaurant or small bakery would either have to slash employee work hours, significantly raise prices, or even cut jobs, just to keep their business going. In our economy, consumers can absorb only so much in the way of price hikes, and there are limits on small businesses if they are to remain competitive.

It is also worth pointing out that, in 2016, the average wage for someone working at a small or medium sized enterprise (SME) in Quebec is $19 an hour, which is well above minimum wage. This is a clear acknowledgement of the value Quebec’s small business owners place on their workers. They know that their success depends largely on the expertise and skill of their workers. In fact, the majority of small business owners would immediately give their staff a pay raise if their business taxes were lowered. But forcing small business owners to increase their least experienced workers’ wages in the current economic conditions by such a significant amount would present a serious risk.

CFIB is not the first to make this claim. For years now, a number of renowned economists have been reporting on the potential negative effects that substantial and rapid increases in the minimum wage would have on employment, not to mention other key indicators like school dropout rates.

A better way to support low-income individuals

CFIB is proposing an alternative for low-income earners in order to avoid these adverse economic impacts, namely, we are calling for an increase to the basic personal exemption for those employees who are working full time. In this scenario, the tax-exempt portion of a worker’s earnings would increase and everyone would come out a winner.

The fact is, whenever minimum wage is hiked, a full-time employee only sees about a third of the increase, because the rest goes to the government through increased taxes and contributions to various social programs (QPIP, QPP, etc.). Increasing the basic personal exemption would mean more money for those workers who need it most.

This is also a winning solution for employers because it enables them to hold onto the flexibility they need in order to give merit-based raises to their more experienced employees, while also remaining price competitive in the marketplace.

This approach will allow Quebec to maintain jobs, especially for young workers; stimulate the economy across the province; provide better support to low-income workers; and, above all, preserve the viability of our small businesses which, as we all know, ensure the health and vitality of our communities.

Martine Hébert
The author is Senior Vice-President and National French Spokesperson of the Canadian Federation of Independent Business (CFIB).

April 25, 2016

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