The facts on Ontario’s minimum wage and workplace changes

The facts on Ontario’s minimum wage and workplace changes

Ontario has announced sweeping changes to workplaces. Under The Fair Workplaces, Better Jobs Act, 2017, the minimum wage will increase to $15.00 per hour by 2019. The proposed legislation also makes changes to the way workplaces operate under the Employment Standards Act and the Labour Relations Act. These announcements have caused quite a stir. Some are rejoicing for better conditions for low-wage workers, while critics warn of risks to the private sector. These changes may be warranted, but the government must consider the pace at which they will be introduced.

Here’s what you need to know.

The key elements of the new workplace legislation are:

  • Increasing the minimum wage to $14.00 per hour by 2018 and to $15.00 by 2019
  • Casual, part-time, temporary and seasonal employees will be granted equal pay for equal work relative to full-time employees
  • Fairer scheduling rules for shift and ‘on call’ workers including 3 hours of pay if a shift is canceled a 48-hour window
  • Extending vacation to three paid weeks after five years with the same employer
  • Ten emergency leave days per year, of which two are paid
  • Increased time off to care for family members
  • Measures to make it easier for workers to join unions

The minimum wage increase is the steepest in Ontario’s history

Raising the minimum wage from $11.40 to $15.00 by 2019 (+$3.60) is an increase of 32 percent in 18 months. An increase of this magnitude is unprecedented in Ontario’s history. Since the 1970s, the biggest wage jump was 0.75 cents over one year.

Who will be impacted by the workplace changes? 

At $15.00 per hour, we can expect more than one million additional people to be at the minimum wage.[1] The other changes may impact a larger number of Ontarians, as they will not be limited to low-wage occupations.

Ontario’s low-wage earners (earning under $15.00 per hour) are more likely than non-low-wage earners to be one or more of the following:

  • Employed by large firms (500+ employees) (44 percent)
  • Female (57 percent)
  • Under the age of 30 (52 percent)
  • Seasonal, temporary/contract, and casual employees (23 percent)
  • Students (21 percent)
  • Working more than one job (7 percent)
  • Single parents (5 percent)
  • Working in retail trade or accommodation and food services (46 percent)
  • Have less than a post-secondary education (58 percent)[2]

The proposed workplace changes will have an impact on many if not all of the individuals within the categories listed above. The new scheduling rules stand out as being those that offer employees the greatest opportunity for an improved work quality. This would be true especially for anyone working more than one job, going to school, scheduling child care, or caring for elderly parents. Particularly in the retail sector, improving scheduling is one of the most important changes an employer can make to improve the quality of an employee’s work life.

How will businesses respond?

Despite the benefits of these changes, businesses are being asked to adopt them very quickly. Some may be more equipped to adapt than others, but any businesses running on tight margins will need to consider its options. Under the new legislation, businesses could be expected to respond by:  

  • Reducing labour costs by laying off employees or cutting hours
  • Absorbing the minimum wage and related costs
  • Raising prices
  • Substituting low-skilled labour for fewer high-skilled employees
  • Downsizing or going out of business altogether
  • Increasing the uptake of automation

How a business responds will also depend on its sector and labour needs. Offering employees two paid personal emergency days per year and up to eight unpaid may be one of the most challenging new practices for firms in the manufacturing sector. Companies may not be able to predict which employees will take days off, and how many, so they may need to overstaff to maintain operations. Allowing these types of days off creates uncertainties for businesses.

Will a new minimum wage impact employment?

In the past, it was widely accepted that increases in minimum wages were detrimental to employment. Economic theory claims that businesses will lay off workers in response to an increase in labour costs, causing a decrease in overall employment.

Recent studies have shown that the evidence is unclear. A survey of distinguished economists illustrates the view that minimum wage increases do not necessarily hurt employment. Many are in fact ‘uncertain’ about the impact a $15.00 minimum wage will have in the US. In the American Economic Review, a rise in the New Jersey minimum wage showed no impact on fast food employment compared to restaurants across the border in lower-wage states. Two authors in the British Journal of Industrial Relations found that a publication selection bias occurred in the academic literature on minimum wages and employment. This means that research holding a similar viewpoint was favoured and published over viewpoints that contradicted previous positions. Correcting for this bias, the authors examined 64 US studies on minimum wage and found little to no impact of minimum wages on employment. Canadian Economist, David Green concludes that “claims that increases in minimum wage will generate mass unemployment are not credible.”

However, these studies have measured the impact of relatively small wage increases over time, not changes as sharp as what Ontario is proposing.

Why $15.00 per hour?

Several US states and provinces, such as Washington, D.C. and Alberta, are also proposing to reach a $15.00 minimum wage in the coming years. It is not clear why governments are choosing this particular wage rate, except perhaps to line up with the widespread campaign “15 and fairness.” In fact, a study by the Canadian Centre for Policy Alternatives found that the ‘living wage’ needed to live in most Ontario cities was between $16.00 and $18.00 per hour. The government may be trying to hedge its bets by selecting a wage high enough to respond to workers concerns while hoping that businesses will be able to adapt.

There is no question that this is tricky public policy. There have been long periods of minimum wage stagnation in Ontario’s history. For much of the 90s, the minimum wage was frozen at $6.85, and again for four years at $10.25 in 2010. Most low-wage workers rely on government policy as their means to achieve higher wages. Unions may not be accessible to them or are inappropriate channels to receive better wages.

There are many reasons to increase the minimum wage. For one, many low-wage workers are adults, supporting families, and disproportionately female. They are not the stereotypical young person with a part-time job. Higher wages can also translate into improved consumer purchasing power, which increases demand and improves economic growth, especially in the local communities where low-wage workers reside. Increasing wages has many societal benefits including reducing turnover, and achieving better health outcomes. In turn, these changes can improve employee productivity, a key component of economic growth.

Ontario must have a balanced plan

The scheduling changes are also recognition that flexibility, control, and dignity are important components of a good job. The government has shown leadership by regulating these aspects of work. However, it is also the responsibility of government to consider the spill-over effects of its decisions. This includes considering the speed of policy changes and their rationale. The government should have taken more time to educate the public, business, and policy community about its decision-making. The government should release a rationale for the wage increase and its plan to work with small and medium-sized enterprises during the transition. The government must have a plan for implementing these changes, or it may fail to achieve its desired impacts. As always, balance is key.

Written by Julia Hawthornthwaite

[1] Using estimates from Canada’s Labour Force Survey.

[2] Please note that people can occupy more than one of the above categories. E.g. they can be female, over the age of 25, and working more than one job.

Category: Legislation, Employment, Income, Social Policy, Labour