Minimum Wage Changes – Maximum Velocity

I have said in the past that I am not interested in politics, don’t understand politics, and don’t align myself with a political party or movement. With that said, Ontario’s Liberals are driving me nuts!

A week ago Ontario announced a rapid increase in the minimum wage for workers. Ontario is going from $11.40 an hour to $14.00 an hour in 7 months and a year later to $15.00 an hour. It’s sometimes hard to put numbers into context but I like percentages. Seven months’ notice for a 22.8% increase followed by another 7.1% increase a year later. These are not small changes for the employers of minimum wage workers.

Rhetoric

I have often wondered if we need to increase the minimum wage in Canada. Arguments about a ‘living wage’ and ‘income inequality’ resonate with me. But I worry too about the other side that argues there will be ‘job losses’ and more ‘automation’ and those that keep their jobs will be asked to do more. Will this change really cause Tim Hortons to close from 1am to 5am? Have you ever been the only person in a Tim Hortons at any time of day?

I am willing to set aside all the arguing on both sides and say that we don’t really know what the aggregate impact of an increase in the minimum wage will be. For sure at least one business will close (and the conservative media will make sure you hear about it). For sure at least one worker will be ‘downsized’. But what about the majority? Maybe the majority will be better off – more money in their pocket to buy groceries and to pay their ever-increasing hydro bill (and for sure the liberal media will make sure you hear those stories). But where will we end up overall? No one knows, it’s an experiment.

Change management

Change or die – we hear that a lot. In my mind, the people I see succeeding in society are the ones that can adapt. Smart and hardworking are valuable traits – but adapting to the change around you is where success lies.

So what drives me nuts about this change? Ontario’s liberals have been in power for 13+ years. If fighting for the little guy was so important, then moving up the minimum wage an extra 2% a year starting back in 2003 would have gotten us to the same place today. Why does this matter? Change is not easy – and people need time to change. Now the winners in this minimum wage lottery will have no problem adjusting to having more money. But the employers won’t all skate through unharmed. Some will lose money for a while before they can reprice their work. Some that are competing with a business in another province may have to close because ‘free trade’ prevents them asking customers for more. Employers that attract ‘better’ employees by paying a few dollars more than the minimum will need to adjust also.

Who cares?

This whole experiment isn’t just important to minimum wage workers and their employers. It matters to every single person in the province. Retirees on fixed incomes will certainly see costs rise. Workers making more than the minimum wage will see costs rise too. Some businesses will see greater revenues if their income comes from serving those minimum wage workers. It is also going to have some sort of impact on the kids – some employers bring in kids to do the small jobs and the cost of training is offset by the low wages. As those wages rise, it may make sense for employers to find permanent staff and the savings on training now will be the offset to the higher minimum wage.

All of this is going to take some re-balancing of the economy and there are going to be winners and losers. When I consult to clients about change – I talk a lot about the winners and the losers. When our clients make changes, they do so knowing the consequences of their actions. No one knows the consequences of this change and it is going to take several years for it to work through the system. I am hopeful that there are a great number of winners and very few losers – we will have to wait and see.

 

 

Joe Nunes
Joe Nunes
Joseph Nunes, President of Actuarial Solutions Inc, has practiced in defined benefit pensions, defined contribution programs and retiree health plans for 30 years. He has experience with many plan designs including single-employer, multi-employer, private sector, government, unionized, non-unionized, as well as registered and non-registered executive plans.

4 Comments

  1. Mike Duggan says:

    My view is that this minimum wage announcement is another desperate ploy by a disconnected Liberal Government hoping to buy votes, disguise past mistakes and try to stay in power. Hopefully voters will see through this act. And I do think that there will be job losses unfortunately.

    • Neil Craig says:

      Amen, one debacle after another. Social conscience most go hand in hand with fiscal responsibility.

  2. Mel Norton says:

    Not acting in the past is not a rational reason for not acting in the present and continuing to act in the future. (IMHO)

  3. Shawn says:

    I thought this was a balanced synopsis of hundreds of studies on minimum wage increases over 70+years … “the cumulative experience of scores of studies” shows minimum wage increases have not proved to be big job-killers.

    http://www.cbc.ca/news/canada/toronto/minimum-wage-ontario-15-economic-impact-1.4143033

Leave a Reply

Your email address will not be published. Required fields are marked *