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Aiming for a formula to set increases in the minimum wage

For those working for minimum wage, the rate is the most important thing: the higher, the better. But how and when the rate does increase has always been something of a mystery, and a polarizing issue.

Earlier this summer, the province appointed a panel to fashion a more transparent and predictable process for adjusting the minimum wage. The move is supported by a variety of stakeholders – business and labour groups, workers, anti-poverty advocates and academics – but even the mechanism, not just the rates themselves, makes for a difference of opinion.

That was apparent in the differing submissions to the Minimum Wage Advisory Panel in the past week by the Ontario Chamber of Commerce and the newly formed union Unifor, for instance.

The business group would prefer to see any adjustments tied to the Consumer Price Index, while the union advocates increases be tied to productivity or average wages in the market, which would have the effect of allowing workers to get ahead rather than simply matching inflation.

Both groups, however, see advantages to a predictable system, rather than occasional spikes followed by long periods of dormancy. Ontario’s current minimum wage of $10.25 an hour has been in place for three years, though the rate has increased by 50 per cent over the last decade, from $6.85 in 2003.

“How we set the minimum wage has not been transparent to this point. That is probably not workable going forward,” said Art Sinclair, vice-president, public policy & advocacy, with the Great Kitchener Waterloo Chamber of Commerce.

Sinclair, who was involved in the Ontario Chamber’s collection of data for its submission to the panel, said businesses want to see a consistent formula that would allow them to budget for expected increases to the minimum wage. As it stands, there can be sudden spikes, which is especially hard on smaller operations.

“Small businesses can’t absorb those large increases,” he said, noting gradual increases are preferable to sudden changes.

But even phased-in increases are problematic to many employers, he added, especially those in the retail and hospitality industries.

In its report to the panel, the Ontario Chamber said its research found convincing evidence that major hikes in the minimum wage will have adverse effects on employment levels, particularly among youth and in Ontario’s retail, hospitality, and leisure sectors.

Those findings don’t mesh with those compiled by Unifor economist Jim Stanford.

The impact of increasing the minimum wage is more complicated than the old, simple models of supply-and-demand, that higher wages means lower demand for employees – or that lower wages simply equal higher profits. Instead, the effects are generally positive.

“The more that we learn about minimum wages, the more that we know that there’s a lot going on in the background,” he said in an interview this week.

The positives are what prompted Unifor’s call for the minimum wage to be increased to $14 per hour. The union’s submission pointed out that the current minimum wage has been frozen for three-and-a-half years, during which time its real purchasing power has eroded by more than seven per cent (compared to average consumer prices in the province).

“It is terribly unfair that Ontario’s lowest-income workers have experienced such a significant reduction in their real wages, at a time when working families need every penny,” said Stanford.

The Unifor submission also endorsed the concept of a so-called living wage, which is a rate sufficient to allow a family of four, with two wage-earners, to pay for the basic necessities of family life. Studies have estimated the living wage in Ontario to be around $18 per hour, and so increasing the statutory minimum to $14 must be only the first step of a broader strategy required to ensure all Ontario workers can enjoy decent living standards, he noted.

For its part, the Chamber argues Ontario’s minimum wage is already above the national average and the highest in the Great Lakes region, comparing it to the U.S. border states.

As it stands, the debate is over the mechanism for setting the rate, not the next increase that could serve as the benchmark for future adjustments. Both Sinclair and Sanford expect more transparency, but couldn’t predict what the final recommendations might look like.

Ontario, British Columbia and the Northwest Territories are the only Canadian provinces that do not have a formal mechanism for calculating or adjusting the minimum wage.

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