Ontario’s proposed minimum wage hike to $15 over the next 18 months has fueled much debate. Sara D’Elia speaks with Derek Burleton, Deputy Chief Economist, TD Bank, about the implications higher wages could have on Canadians and the economy. The TD Economics report is available here.
So I started off with Ontario. But this is something Alberta and BC have also talked about. So how does the Ontario proposal compare to other provinces and even the US?
What is, it isn't new. We've seen other provinces and US jurisdictions move. $15 seems to be the number these days. In Canada, it really is the bigger provinces taking the lead. Alberta is partway through a plan to raise its wage to $15. BC has a plan.
The new government there wants to get it to $15, but hasn't announced a timetable for that. So Ontario is part of this new wave moving to $15. Most other provinces, the smaller ones, tend to have lower wages, partly reflecting the lower cost of living in those cities, between sort of $9 and $11.
Now one of the things that I thought was really interesting in your report is, when people think about minimum wage, they often think these are younger people or students. But when you looked at the demographics, it painted a bit of a different picture. What can you tell us about that mix?
Well, teens do make up a significant share. About 40% of minimum wage earners are teens. And then when you kind of go up through the age spectrum from there, the rest of it is largely young adults. So that makes up a big difference-- so definitely skewed to the younger end of the population. But under this new plan, what's interesting is that it would shift that balance. As you get the wage up, you would get more into the adult population, those 25 and older. And you would see a significant swing in the share to as much as 60% would be adults, as I say, 25 and older. So teens, yes, they will still make up an important part. But the pendulum would swing towards the adult population.
And with the lion's share, let's say 60%, being adults, if you think about how that impacts household incomes, you say, that's a good thing. People are earning more. A negative impact could be businesses have to pay more in compensation. Something else that could be a knock-on effect for consumers, prices could go up. But what are some of the other hot topics or issues being debated right now?
Well, it is. You mentioned-- talk about crosscurrents for an economist. This is both ecstasy, if I can use that word. You're sort of fighting through all these pros, and cons, and good things for the economy, and obviously some of the concerns.
Some of the things that we would also look at would be, when you talk about raising the minimum wage to $15 in Ontario, you're not just looking at those that currently make $15 and less, but those that are around that precipice, sort of $15 to $17. So even in industries where you don't have a significant share right at minimum wage or below that $15, it would be of concern to some other sectors where they have a large preponderance of workers close to $15. Because they would probably push for higher wages. So that's one thing.
I think, for us, the bigger question is not so much the level of the wage it's going to, it's the speed of increase. It's the timing in the economic cycle. If you're an economy that's growing at 4%, you're going gangbusters. The economy can weather the impact or the businesses can weather the impact of the higher costs without too much visible effect. But if it's a slow-moving economy where there's pressure on the labor markets, that would be more difficult.
And certainly, just the magnitude is important. We tend to think about minimum wages not in isolation, but relative to the median wage in the economy. And this is important. Because in Alberta, they're going to $15. But the median wage in Alberta is much higher than Ontario. So that economy, it would be less of a challenge for businesses, because it's all relative to what the market wage is. Whereas in Ontario, you would push up the minimum wage to about 60% of the median wage, which is relatively high both in North America and even in an international context.
Something you touched on early on in your response there was around where we are in the economy. And with the Bank of Canada in a tightening cycle right now, so we're seeing a hike in rates, how do you think this could impact potentially housing and even jobs? And then you add in the layer of higher wages. Do you think it could slow our economy?
There's no doubt that-- I do think, because of those factors I just spoke of-- the timing of it, the speed of it, and also other costs businesses are currently encountering-- that it will have a headwind on employment. I don't think it's enough to push employment in negative territory in Ontario in the year ahead. But certainly, trim the rate of employment growth down from, say, 1%, which has been the trend rate down, closer to a 0.5%-- so a significant impact, but not disastrous impact.
But that still will have an impact on spending, and on housing, and if anything, lead to somewhat weaker economic growth in 2018 and 2019 than under a business as usual basis. So this is something that Bank of Canada will have to look at. Yes, it can push up inflation in Ontario maybe by 3/10 of a point. But I think the bigger impact on monetary policy will be somewhat of the weakening effect that we see on a longer-term basis, not the short-term higher spending from a wage increase.
But that would probably lead the Bank of Canada, slow the pace of interest rate increases relative to what it would have been otherwise. So we're comfort with our view on the bank proceeding very gradually with higher rates. But because of this policy, we're not increasing the rate story, but more, if anything, just being a bit cautious, in terms of where we see policy and rates going.
So a factor to consider, but not necessarily a big proponent.
Yeah, I mean, Ontario is 40% of Canada. But the impacts we're looking at, both in terms of employment spending and on inflation, they will show up to some extent, certainly in our projections. But I think when the Bank of Canada is looking across an array of effects, if anything, it's just going to lead to more caution on the rate increases.
A very hot topic as part of this debate has been the number of potential job losses as a result of higher wages. If you had to estimate what that could look like or how many jobs, what do you think that could look like?
Well, I think, again, I'm comfortable with the view that it's going to slow the rate of hiring demand. It's quite a significant cost increase. And so businesses will have to look at ways to make up the difference, whether it's automation, or trimming back hours, or even laying off some workers at the minimum wage levels.
So I think, if anything, our view is probably 80,000 to 90,000 will be the impact over three years by the end of the decade, in terms of lower employment relative to business as usual. That gets you to just a more modest rate of employment growth on a net basis. So we are already looking at a slowdown on Ontario employment growth. But if anything, this will just push a little bit lower.
Now an important distinction being, not negative employment, but just a slower pace of growth.
Yeah, I think so. I mean, the media, when they saw the report, tended to read it as TD Economics is calling for an outright decline in employment. But that's not what we're saying. And I think this gets an important point. There are ways to mitigate those effects. And that's something we also mentioned in the report. They could stretch out the timeline by two years.
And I think any chance you give businesses another year or two to adjust, I think, that, if anything, would preserve some of the positive effects. Because I think you have to acknowledge that it will help some low-income individuals. You talk about living wage. It'll help those individuals. But you want to mitigate some of the negative consequences. And I think that would be a good balance in this case.
And just to close off, you brought up living wage, just an important distinction being minimum wage versus living wage, where that's the cost it would take someone to live in a specific city. And this has been debated amongst politicians and economists, in terms of, which one would have the bigger impact, or which one is more relevant? But in addressing poverty, you say, it's actually about more than that. How so?
Well, it is. I mean, you look at the minimum wage, you're going to help some residents in low income. There's no doubt. So I'm not saying it's completely ineffective. But it's not the sharpest tool in the drawer to deal with poverty.
I like programs more embedded within the income tax system that the governments run. There are already some great plans. The working income tax benefit in Canada is a good model for how you support individuals as they move from welfare to work or even at the lower end of the income spectrum. So the problem is, of course, these costs money. And that's a challenge right now. But they are better to deal with poverty than is the minimum wage. And I think you mentioned a good point there. I think, you talk about a living wage. But you look across Ontario and the level of market wages vary so much from Windsor to Toronto. Toronto's a high wage. So I think government needs to think a bit about maybe having varying minimum wages depending on the region within a province. In the US, they have a model for that. Cities have their own minimum wage. Seattle has moved to $15.
So I think there should be some thought as to, can we come up with a plan? I don't think this has been seen anywhere in Canada. But just given the different costs of living, you could have a $12 minimum wage in Windsor versus a $15 in Toronto. I think that would be more appropriate.
Thank you very much.