by Jade Wong, Staff Writer
On October 1st, 2021, Ontario’s general minimum wage rose from $14.25 to $14.35 per hour, an increase of just 10 cents. The minimum wage has also increased by ten cents, for students and liquor servers, respectively, to $13.50 and $12.55, and has been increased to forty-five cents (from $71.30 to 71.75) for hunting, fishing and wilderness guides.
This change is however perceived as not having a substantial effect on workers’ welfare and has therefore stirred public discontent, with some commenters criticizing it as “insulting”. In a report by CBC News: The National, Brad Hakker stated,
“It is difficult enough already, to live off minimum wage. If you work 40 hours a week, that’s an extra $4 a week. That’s not gonna make any real difference.”
The justification that Ontario’s Labour Minister Monte McNaughton gave relates to long-term economic growth. He claimed, “I do not want to create an economy of minimum-wage jobs. That’s why, for example, I am encouraging people to go into skilled trades.” He also states that “We need people to get the training for in-demand jobs that are going to pay more so they can provide for their families.” This statement implies that the aim of this policy is to form an incentive for low-income workers to obtain the skills necessary to shift to knowledge or skill-intensive jobs.
When interviewed on the 10 cent rise in the Ontario minimum wage, Dr. Robert Gazzale, Associate Professor in the Department of Economics at the University of Toronto stated,
“It is not entirely clear why this relatively small increase in minimum wage has an impact on job retraining. It seems to me as though the Minister is trying to say, ‘We have increased the minimum wage, but what we want are workers who are not affected by the minimum wage.’ And I agree that this is a laudable goal, but it is not clear to me why increasing the minimum wage will deflect from the goal of getting to a world where workers earn more than the minimum wage.”
Instead, Dr. Gazzale suggested the role of the government should be to ensure workers can take advantage of retraining. He said,
“For example, to what extent is the lack of affordable child care preventing people from getting [job] retraining? To what extent are short-run budget constraints getting in the way of people getting retraining? Hopefully the situation is going to be like – [Retraining] bears a cost now, but if the reward is higher earnings in the long run, this should be the thing that almost everyone wants to do.”
According to the Ontario’s Early Years and Child Care Annual Report for 2020, the median fees for child care were $1980 per month for infants and $22 per day for school-aged children. With a minimum-net-yearly salary of $23316, child care is financially inaccessible to most households.
Another obstacle to occupational mobility (the ease one can change from one job to another) is the risks incurred. In their research “Financial Frictions and Occupational Mobility” for the Federal Reserve Bank of Kansas City, Hawkins and Mustre-del-Rio also pointed to risk of the new job paying even worse than the old one as an obstacle for workers seeking better alternatives. Tackling these barriers could potentially be an alternate option to encourage changing jobs, instead of symbolically raising the minimum wage.
Another interpretation of this marginal rise in the minimum wage is that it is merely an adjustment to nominal (face-value) wages in order to try to match inflation. Dr. Gazzale said,
“The main [comment] is that this increase in minimum wage was not meant to be an ‘increase in minimum wage’. It was meant for the minimum wage to keep up with inflation, which compared to the past is really what I think a good policy that at least keeps purchasing power (the amount of goods and services one can purchase with his/her income) constant as opposed to a minimum wage that gets set and has its purchasing power erode.”
It should be noted, however, that Dr. Gazzale is merely pointing to the design of the minimum wage system, rather than this recent increase in the minimum wage.
Globally, the minimum wage system which takes inflation into account is adopted by many other regions. From a report by Currenxie, Hong Kong revises its minimum wage every two years in order to counterbalance inflation. The inflation-adjusted minimum wage system adopted in Ontario and other areas such as Hong Kong is favourable compared to non-inflation-adjusted minimum wages. For instance, from 1986 to 1996, Canada’s minimum wage stayed stagnant at $4 an hour, while inflation averaged 3.084 percent annually in the same time period. This led to a decline in purchasing power of the general public.
The 10-cent raise in Ontario’s minimum wage is considered ineffective at meeting the Labour Minister’s aims of increasing occupational mobility, and does little to improve citizen welfare in the midst of a Covid-19 induced economic slump; nonetheless, in comparison with other systems without a safety net against inflation, it is still a positive development.