Increase in Minimum wages could lead to 60,000 fewer jobs in future

Minimum wages

At the onset of the New Year, Ontario has announced, a rise in its minimum wage to $14 per hour, from $11.60. Moreover, it has a plan to increase it, to $15 in 2019. Alberta is also expected to raise its minimum wage to $15 sometime later.

People stay worried that this increase will not help to change anything because; the prices may also go up.

A report by Bank of Canada examined the effect of increases in minimum wage across the country and has painted a bleak picture. It says that the increase in minimum wage could cost 60,000 jobs by 2019, to the country and lead to higher prices. The survey of Canadian Federation of Independent Business reports that 34 percent of small – and medium-sized business establishments, in Ontario are likely to consider selling or closing their business, or moving out, owing to the proposed increase.

A report by the Centre for Economic Analysis Canada found that fewer jobs would be at risk if the wage increase was spread over, a period of five years.

The economy can cope up with the increases if it is planned. Economists feel that determining the probable effects of wage increase is a complicated process. There is no mention that 60,000 workers will be laid off, but job creation would be less by 60,000. The report has estimated that the number is 0.3 percent of the national employment level which was recorded in November. In that month, 80,000 new jobs were created.

The Bank of Canada is certain that an estimated eight percent of all employees are employed at the minimum wage. In the eyes of a senior economist, of Canadian Centre for Policy Alternatives, the loss as per the estimates of the report is less than the jobs created in one month. Any such increase in minimum wage, will not impact on employment.

bank of canada

There is an uncertainty, regarding the calculation of the effect, of such increases. When the average working hours decline, subsequent to the wage increase, the number of jobs lost would also fall.

A factor to determine the effect on employment is the interest rate, which is controlled by the Bank. In case the Bank of Canada did not increase it, the impact on employment would be insignificant.

Another factor to include is the rate at which automation of business operations is carried out, and the workers, earning more than the minimum wage, claim a proportional increase in the wages earned by them. The message from all these deliberations is that the economy has the capacity to adjust to higher minimum wages. All the factors have to be played out.

It is predicted that a big impact might be felt, by the specific industries and communities, which employ more low-income workers.

Many competitive industries like tourism, the retail sector, and food and beverage, cannot pass on the wage increase completely to the consumer. All Businesses will try and adjust. It is likely to impact on the hiring practices and business model adopted by them. The wage increases will give low wage workers sufficient money to spend. Such an increase, in the money and wages for them, will help them to spend more in local businesses. Moreover, the increase will help some of them, to move out of poverty. The Economy will prosper directly, and many workers will earn around $300 to $400 more, which is enormous to buy more and better things.

Economic models generally ignore the benefits, accrued through the increases in the minimum wage, and this has been a repeated pattern. Better developments will definitely happen.

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