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Minimum wage, maximum benefit

Your morning coffee might be a bit more expensive in 2018, partly due to increased labour costs. But it will be worth it in the long run.

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Across Canada, provinces are raising their minimum wages. Alberta has the most ambitious plan, with an increase to $13.60 on Oct. 1, 2017, and plans to raise it to $15 by Oct. 1, 2018. Ontario is close behind, raising the minimum wage to $14 on Jan. 1, 2017, with plans to go to $15 on Jan. 1, 2019.

The Bank of Canada responded with a study estimating that Ontario’s move could cost up to 60,000 jobs. The traditional arguments underpinning these conclusions are that higher wages mean a more expensive payroll, reducing the ability of employers to hire people.

This may be true for some individual small businesses, but these assumptions are based on outdated modelling. Historical data of minimum wage increases in Alberta, B.C., and Ontario mirror findings in Britain and the United States that the minimum wage has a negligible effect on unemployment, and in fact has a very different impact on the economy.

First, wage increases pressure businesses to use the labour force more effectively, reducing labour market inefficiencies. They provide an incentive for employers to improve training and supports for employees, resulting in greater productivity. Employers also experience reduced turnover and have lower recruitment costs.

When increases result in hiring freezes or reduced hours for employers, that’s offset by job growth in other sectors of the economy. Unemployed individuals invariably find employment elsewhere, typically in more highly paid positions where they often experience greater job satisfaction in their new roles.

Furthermore, increasing the minimum wage creates greater disposable income for the lowest economic strata of society, money which is almost invariably spent domestically unlike wealth created by other sectors of the economy. Local spending provides an economic boost, especially in retail and the service economy which then need to hire more workers.

Most businesses can accomplish all of this without necessarily increasing the price of their own goods or services. When that does occur, losses are offset by the increase in aggregate market demand.

Minimum wage increases are especially important at this particular point in time. Economic recessions such as the one we experienced nearly a decade ago have a far more significant impact on unemployment. In an open letter released last year, Canada’s leading economic academics suggested that increasing the minimum wage is currently necessary for our economic revival.

There are also moral and ethical reasons to support the minimum wage.

When Canadian provinces first introduced minimum wages in 1917-1921, manufacturers did not raise much opposition. Canadian businesses supported it for humanitarian reasons, and to avoid a race to the bottom, according to Kathleen Derry and Paul H. Douglas, writing at the time in the Journal of Political Economy.

Unlike Britain and Australia, Canada limited the minimum wage to women, minors and specific industries (jobs that men would not be interested in.) The only exception was Chinese-Canadian men who worked in laundromats. They were excluded from more lucrative jobs meant for whites, giving them few alternatives once the Trans-Canadian railroad was built.

Every Canadian did not benefit from the minimum wage until it was extended to both genders.

To this day, minimum wage serves the important function of protecting vulnerable workers. Women, especially those over the age of 25, are consistently overrepresented among minimum wage workers. Older workers also have more trouble finding employment; aging baby boomers, for example, need protection as more traditional roles are automated.

When the minimum wage, goes up, we might notice that we’re paying higher prices for some goods and services. But we don’t always recognize the hidden costs of not providing a living wage. It’s a small price for society to pay so citizens can meet their basic living costs when holding down a job.