By Robert Washburn
It is hard to imagine a hike in Ontario’s minimum wage would do much good across Northumberland. The growing number of empty storefronts on main streets, plazas and inside malls is a sign of the troubled nature of the local economy.
Ontario Premier Kathleen Wynne and her government approved a hike in the minimum wage to $11 per hour starting in June. While local, labour, poverty and social justice advocates praise the increase (although many say it is not enough), neoconservatives and businesses condemn it, saying it will kill jobs.
Critics hold on to an antiquated view first proffered in 1946 by economist George Stigler. He was the first to say minimum wages hurt employment (even though they had been around in Canada since 1918).
When they were introduced or increase it put pressure on low-wage workers to either increase their productivity or they would be laid off, he argued. In most cases, there were reductions in the workforce.
Subsequent studies over several decades following this landmark finding supported the conclusion. However, more recent studies done in the past 30 years have not been as conclusive. In fact, studies done in the United States and Britain have found a positive impact on employment, according to a review published by the Public Policy and Governance Review in its Winter 2013 issue.
There are other changes, too. The number of Ontarian’s living on minimum wages has more than doubled from 4.3 per cent to nine per cent, according to a study done by the Wellesley Institute. In the past, it was mainly women, immigrant workers and young people worked for low wages. But, the number of people over the age of 25 working for minimum wage has doubled since 2003, the study reported. This means an increase is going to impact a lot of people, not just a marginal group.
Not all economists see the increase as a bad thing. Mike Moffatt, an assistant professor in Business, Economics and Public Policy at the Ivey Business School at Western University, argues for an increase to $11, although not to $14 proposed by advocates. He argues the market can handle a modest increase up to $12.18 by 2018 without having a negative affect.
Yet for rural areas, it seems hard to imagine. In the face of closing businesses and a scarcity of jobs, it appears to be another negative blow.
But, it is not. Hikes in the minimum wage stop costly employee turn over, according to Forbes magazine. When Henry Ford increased the salary in his plants back in the early 20th century, it was done to stop people from leaving, reducing the cost of hiring and retraining workers, not so they would buy his cars as urban legend has it.
Just stop and think about how often you see different cashiers or servers at your local retailers. Workers quit dead-end jobs. Some would rather be on unemployment insurance or welfare, creating a further burden on taxpayers.
What makes it even more complex locally is the large number of franchises, where control over the management of the business is dictated from afar. Rather than profits staying in the community and being reinvested into higher wages or increased employment, this money is bled away. Also, these larger chains and big business are the most likely to be able to afford increases as compared to the “Mom and Pop” shops.
Finally, people at who make minimum wage tend to spend all the money they have, according to Canadian social-justice economist Armine Yalnizyan. Give them more money and they spend it, thus increasing demand, which ultimately boosts the local economy.
“Employers don’t create jobs; consumers do,” she says in a recent article.
So, instead of fearing an increase, maybe Northumberland County residents should be embracing it. Who knows? It may be the first step to filling those empty storefronts.
First published: Feb. 26, 2014