By Charles Lammam,
and Ben Eisen
The Fraser Institute
The Ontario government recently proposed a series of changes to provincial labour laws, including a significant hike of the minimum wage to $15 per hour. But the proposed changes will hurt the vulnerable workers they’re meant to help.
The proposal would increase the minimum wage from its current rate of $11.40 to $15 by 2019. This is a 32 percent hike in less than two years, on top of several other hikes in recent years. In 2019, when the new rates are fully implemented, Ontario’s minimum wage will have increased 110 percent since 2004. That’s much more than what would have been required to keep pace with inflation.
And despite good intentions, the Canadian evidence consistently shows that minimum wage hikes result in fewer job opportunities for inexperienced and low-skilled workers.
Just as consumers tend to buy less of a product if its price increases, employers hire fewer workers and/or reduce labour costs if government regulations make it more expensive to employ workers without corresponding improvements to workplace productivity. The least skilled workers – often those ages 15 to 24 – lose employment opportunities because they tend to be the least productive due to their lack of experience and skills.
Canadian research consistently finds that for every 10 percent increase in the minimum wage, youth employment falls by three to six percent. Even the Ontario government’s minimum wage advisory panel acknowledged this. Considering that the government plans an increase of 32 percent, the negative effects on youth employment will be stark.
And because Ontario will implement the marked increase over less than two years, the negative effects will be magnified as employers – including many small businesses – will have little time to plan and adjust accordingly.
The government also plans to increase labour costs in other ways. Those include mandated higher benefits for employees (more paid vacation, paid emergency leave). Those measures will likely have similar negative effects: fewer job opportunities for low-skilled workers.
Research published by the International Monetary Fund (IMF) covering 97 countries from 1985 to 2008 finds that increasing the cost of hiring – including mandated increases to leave and paid vacation – contributes to higher unemployment. The same study finds that more stringent and restrictive labour market regulations in general lead to higher unemployment, particularly among youth.
Crucially, the Ontario government plans to mandate higher labour costs at a time when businesses already face high electricity prices, in part due to provincial government policies. In fact, the proposed labour law changes are just the latest in a series of government policies that make the province a less-attractive place to do business.
The provincial government has explicitly said it wants to help vulnerable workers in Ontario. Yet its proposed labour policies will hurt, not help, many workers – especially Ontario’s youth.
Charles Lammam, Hugh MacIntyre and Ben Eisen are analysts with the Fraser Institute.