Blogs & Comment

Finally, some sensible progress on Ontario’s minimum wage: Mike Moffatt

Close-up of a Canadian quarter

(Gamma Man/Flickr)

On Monday, the Ontario government released their long-awaited report on the minimum wage.  This report is an impressive piece of research, collecting a great deal of demographic data on minimum-wage workers as well as summarizing a number of academic studies on the minimum wage. I found the hours worked data particularly interesting; for instance the average minimum wage earner works 24.5 hours a week and over 61% of minimum earners work fewer than 30 hours a week. The full report is written in a way to be accessible to those without a public policy or economics background and is a must-read for anyone interested in the topic.

The highlight of the report are four policy proposals that can be summarized as follows:

  1. The minimum wage should increase each year at Ontario’s inflation rate.
  2. On December 1, the next year’s minimum wage should be announced, which would go into effect on April 1.
  3. The Ontario government should review the minimum wage process every 5 years.
  4. A data collection and research project should be funded by the government to study the macroeconomic and other effects of changes to the minimum wage.

Those final two proposals are highly worthwhile; together they constitute point 2 of my 3-point minimum wage proposal. The first two proposals are needlessly complicated. Tying the minimum wage to the Bank of Canada’s inflation control target provides near identical results but without the added uncertainty. Knowing if 2017’s minimum wage will be  $10.92 or $10.94 is relatively unimportant in the grand scheme of things, but what is gained by making a process more complicated than it needs to be?

My only significant complaint about the report is that it largely assumes the macroeconomic issues around changes in the minimum wage are unrelated to the level of the minimum wage. That is, a 10% increase in the minimum wage will have the same impact on unemployment or hours worked if the minimum wage is at $10 or $14. This is almost certainly not the case as UK research as well as Canadian research by Pierre Fortin indicate that marginal disemployment effects become more important the higher the minimum wage is relative to the region’s median wage. The report contains a great deal of data on Ontario’s minimum wage relative to median wages, but this macroeconomic analysis is missing. I am hopeful that this will be addressed in the next report and that the research project proposal will address these disemployment questions for Ontario.

The Minimum Wage Advisory Panel was given an important public policy question and while their report is not perfect, it is a fantastic piece of research. I am hopeful this will lead to similar public policy research initiatives in the province. Kudos to the panel for work well done and to Premier Wynne for encouraging evidence-based policy making in Ontario.

Chart of Ontario's minimum wage, inflation-adjusted