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Do minimum wage hikes help or hinder the economy?

By now many of us have read or heard about the Wal-Mart in Ohio that held a Thanksgiving food drive, in which employees were asked to donate to help coworkers in need. The highly-publicized event offered a shocking new twist to the low-wage workers debate.

North of the 49th parallel, the visual storytelling may be less jarring, but the takeaway is the same: Should we hike minimum wage levels and does it help or hinder the economy?

Proponents of minimum wage hikes suggest that raising pay would put more purchasing power into the hands of consumers, who would in turn spend the money needed to grease the economy. People would also be able to participate more in society such as going to the movies once in a while or meeting a friend for coffee, outings low-wage earners can't usually afford.

A hike could also combat an increase in precarious work and reverse the trend of eroding labour standards and worker instability such as low-paying contract work or work that lacks benefits or pensions, says Kaylie Tiessen, an economist with the Canadian Centre for Policy Alternatives.


"We're starting with the premise that every job should be a good job. In Ontario, right now a person working a full-time minimum wage job actually lives 25 per cent below the poverty line so, obviously, not a very good job," says Tiessen.

The issue is one of national importance, but the focus will soon be on Ontario. In mere weeks, the Ontario government is expected to release highly-anticipated advice on next moves when it comes to minimum wages.

In a recent analysis, the CCPA argues the current minimum wage of $10.25 per hour, which has been in place in Ontario for the past three years, should be higher at $14.50 an hour by 2016. (Minimum wage is highest in Yukon at $11 an hour and lowest in Alberta at $9.95 per hour.) Hiking pay would not only give citizens more money to pump back into the economy, it would also keep people healthier, which in turn takes the pressure off over-stretched health-care and other government-run systems, says Tiessen.

"We have a value in our society that work should pay, that work should be a pathway out of poverty. Someone working hard, full-time, full-year, should not be living below the poverty line," she says.

In Canada, roughly one million Canadians are living on minimum wage pay or less with the lion's share of those workers residing in Ontario, according to Statistics Canada.

President Barak Obama recently highlighted the minimum wage issue in a speech. "The top 10 per cent no longer takes in one-third of our income -- it now takes half. Whereas in the past, the average CEO made about 20 to 30 times the income of the average worker, today’s CEO now makes 273 times more," he said in his speech. "And meanwhile, a family in the top 1 per cent has a net worth 288 times higher than the typical family, which is a record for this country."

Hiking minimum wage is "certainly not a magic bullet," says Erin Weir, economist with United Steelworkers, adding "the importance of minimum wage is it puts a bit of a floor under the labour market."

He also pointed to recent sluggish third-quarter Canadian growth data, which highlighted a slowdown in household spending with many Canadians squeezed by debt. "If wages were increased that would finance increased consumer spending without additional debt," he says.

Opponents worry hiking minimum wage could hurt the bottom line of businesses and possibly, in turn, push up the jobless rate, thereby hurting the very people the raise is supposed to help. In a submission to Ontario's panel, the Canadian Federation of Independent of Business says there are alternatives to raising minimum wages such as tax relief and skills training.

But if minimum wage policy is set to rise then there should be several caveats including rises should be set in a predictable and transparent manner, says CFIB, along with hikes being in line with changes in inflation. Government should also provide tax reliefs to offset any impact on minimum wage hikes.