Canadian policy is currently being dictated by emotion (or more accurately, postmodernism) and the lack of objective analysis in some of the new bills and laws being passed will have dire consequences in the future.
In Ontario, the decision by the Wynne Liberal government to raise minimum wage to $14 by 2018 (about a 30% increase) and $15 by 2019 was made despite all the evidence and common sense showing it will hurt low wage earners and businesses.
The $15 minimum wage experiment recently happened in Seattle, and a University of Washington study reported that the minimum wage increase has actually led to a net $125 per month per job loss for low wage earners.
Basic economic analysis could have predicted that outcome. When labor costs go up, businesses have to balance their budget by cutting labor or increasing prices. Artificially increasing prices lowers demand. A savvy customer will look outside the province for more competitive prices. With supply remaining the same, lower sales revenue and higher operating costs, this leads to immediate deficits. Businesses lean towards more automation and cutting their workforce as an alternative to raising prices.
If they hire workers at $15/hour, employers should expect their workers to work at the current market value of $15/hour. That is, two $15/hour employees should be able to do the work of three $11/hour employees. If all other economic factors remain constant, the artificial inflation in wages will result in a third of low-wage jobs being killed.
In reality, things will play out far worse.
If the entry-level employee gets an immediate 30% raise, then every manager, senior employee, etc. will require a similar raise. Otherwise, why would they want the additional responsibility and time investment if there is no incentive to do so? This would magnify the increase in payroll costs, encouraging more job cuts and price increases.
If prices are raised and employment levels are somehow kept constant, there is immediate inflation. The price of goods and services sold would have to go up in proportion to the wage hike. All existing assets and savings immediately lose value in the same proportion. The rich will not get richer, but the poorer will become poorer.
People living off entirely on savings and investment (e.g. the unemployed, the retired and new entrepreneurs) will need to reenter the workforce because their purchasing power has decreased by an amount proportional the minimum wage hike. That increases the demand for low wage, entry-level jobs.
There is added pressure from the recent mass immigration of unskilled pools (e.g., refugees and economic migrants). The housing bubble in Ontario exacerbates the problem, as does the federal plan to dissuade startups and entrepreneurship with the removal of many tax breaks and deductions for small business.
A great case study to illustrate the impact of all of the recent government policies is the golf industry in Ontario. Take this memo from GolfNorth that explains how a combination of several poorly thought out policies are hurting everyone:
The government of Ontario has made legislative changes and imposed many programs over the past several years that have negatively impacted the golf industry. Beyond hydro rate increases of over 50%, these include additional mandates, procedures and costs from both the Ministry of the Environment and Climate Change and the Ministry of Labour. However, the most severe impact to the golf industry is going to be felt in 2018, as a result of the Provincial Government’s changes to the Employment Standards Act and increases to minimum wage. The reality is that the golf industry, similar to the restaurant industry, employs many students and other seasonal workers. Many of these workers are paid minimum wage. Minimum wage is increasing 32%. In most cases, 2018 GolfNorth membership pricing has increased in the area of 10%.
Golf courses, like virtually all businesses in Ontario, cannot absorb a 32% increase in labour costs, without a substantial change to their business practices. Many businesses will likely fail as a result of these upcoming changes. Prices in many areas will increase, particularly in operations that are seasonal and those that employ many young people, such as day cares, restaurants, movie theatres, water parks and ski hills; Inflation is an inevitable consequence. This is also going to result in a loss of jobs since many businesses will simply cut back even further on staffing to try and survive.
On September 12, 2017, Ontario’s Financial Accountability Office issued a press release stating that the upcoming changes to minimum wage could cost the Province of Ontario a loss of 50,000 jobs.
There are more correlations that extrapolate to an even worse outcome.
The increase of the unskilled labor pool through non-standard immigration paths (a disproportionate number of refugees and economic migrants moving in, as opposed to screened immigrants with greatest culture fit and economic potential) has caused a rapid increase of ghettoization. Higher prices and fewer jobs means a lot of unemployed youth in these enclaves are seeking direction and income in an increasingly desperate situation. This leads to the growth of gangs and a dependence on crime and/or welfare in order to survive.
As sensational as it sounds, Ontario’s $15 minimum wage increase is not just going to kill jobs, it’s going to kill people. There already are disturbing trends in gun violence and robberies, anecdotally and officially. Increasing crime rates and taxes on those that do earn money pressures income earners to move out of the province, leading to even fewer businesses, and more jobs and people getting killed. It would be naive to not link crime with bad economic policy.
I’ll leave it to Ben Shapiro to succinctly summarize what will happen in Ontario and Canada in due time:
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