The Government of Ontario has announced that it plans to increase the minimum wage to $11.00, up 75¢ from $10.25.  The increase is planned to come into effect on June 1st, 2014.

The decision has created discussion on whether or not the increase is needed or whether the benefits will be outweighed by the added costs.

The rationale here is that the minimum wage has been stuck at $10.25 for the last four years and inflation has eroded a lot of the purchasing power that a $10.25 wage allowed.  The Liberals have increased the minimum wage up to $10.25 since coming to power in late 2003, as it had been frozen at $6.85 for eight years prior to that.

The main benefits from an increase in the minimum wage are that those earning less than $11.00 per hour will receive a pay increase (which is a good thing) and that the extra income will give them more money to spend (hence helping drive the economy.)

On the downside, businesses – especially small business owners – may not be able to pay all their employees more money and may have to let an employee (or a few employees) go in order to pay the increased wages for the remaining employees.  Of course, an increase in the minimum wage also add costs to businesses, and guess how businesses will have to get that money back?  Yes, through higher prices.

Let’s look at some of the issues on both sides:

• An increase in the minimum wage helps those who work the many jobs in the province.  Of course this means they will be making more money.  However, for large organizations, there is always the possibility that employees can earn more than the minimum wage in a number of ways – through promotions, taking on additional responsibilities (which does not necessarily mean a promotion), wage increases as a result of good performances, etc.
• The economy may or may not benefit from the increase.  While higher wages mean that an employee has more money to spend, it may also drive inflation due to the higher costs this entails for employers, thus eroding the extra income.  And as much as economists will take one position or another, the final analysis can only take place after any increase is undertaken.
• Increases in pay, while very rewarding for employees, is a privilege and not a right.
• Many minimum wage jobs are entry level jobs, so the assumption is that the employee will eventually take a better job (either within the same organization or with another organization) and thus will not depend on the minimum wage job for their entire career.
• Increases in the minimum wage tend to hurt smaller organizations than larger ones as they have lower revenues and tend not to have as much room for employees to move up in rank and receive a higher wage.
• Should the Government be meddling in the private sector?  While some oversight by the Government is a good thing (for example, ensuring a safe workplace), does the Government need to regulate how much people earn as well?
• The Government could invest more money into post secondary education to encourage people to gain skills that would allow employees to receive higher paid jobs.
• Conversely, the Government could provide tax credits to employers who reimburse employees for taking extra courses.  This would allow employers to assist their own employees (and not just those who are being paid minimum wage) to take courses that will lead them to higher paid jobs.

So should the the Government raise the minimum wage?  At the end of the day yes.  There are many jobs that will only pay minimum wage due to economics.  As inflation increases costs, companies that do not naturally increase their employees’ wages should be forced to do so. Although the Government should maintain the increases at a slow speed as not to cause undue hardships to employers (employees will not earn anything if there are no jobs), but still maintain a reliable minimum income.

Of course, student jobs or jobs that normally receive gratuities (i.e. tips) should receive a slightly lower minimum wage.  Students are just starting out in the workforce and do not have as much experience which naturally means that their wages could be reduced to compensate for this lack of experience.  And their wages can be increased as they finish off their education and gain experience.  Plus, for employees who will be receiving tips, there is need to worry about about them receiving as much money.  However, as with other jobs, employers should pay more than minimum wage for their better employees despite receiving gratuities.

Although, ultimately the Government should be encouraging those in “minimum wage jobs” to take post secondary courses part time in order to eventually get a better job.  At the same time the Government should be encouraging businesses to come to Ontario, especially those who will be paying their employees more than minimum wage.

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