Are minimum wage hikes bad for biz?

OTTAWA—Minimum wage increases are hurting the economy and employment, especially among small and medium sized companies, according to a new report from the Canadian Federation of Independent Businesses (CFIB).

The CFIB says mandated pay hikes take a toll on employers’ payrolls, forcing them to cut hours, training and jobs.

The report warns a 10 per cent wage increase across all provinces could cost the country 321,300 jobs in the form of hiring freezes, slower employment growth or direct cuts.

Ontario—where minimum wage is $10.25—would be the hardest hit province. It could lose up to 123,000 jobs, followed by Quebec with 73,500.

Currently, minimum wage in Canada ranges from $8.00 in B.C. to $11.00 in Nunavut. In the past decade, most provinces have raised their rates. Increases are planned this year for New Brunswick and the Northwest Territories.

Governments should hold off on further raises and explore other policy options, says Marilyn Braun-Pollon, CFIB vice-president for Saskatchewan and co-author of the report.

“Especially at a time when the economy is in the full swing of recovering, the last thing we need is a blunt tool that actually leaves low-income earners behind,” Braun-Pollon says.

Pay hikes mean higher taxes for lower-paid employees, who’d be better off if governments pursued alternatives, such as providing training or additional income tax relief.

“Look at Saskatchewan, where a minimum wage earner makes $9.25 an hour, but has a higher annual net income than in Manitoba, where the minimum wage is higher, but the government taxes more,” she says.

Braun-Pollon argues that increases intended to help Canada’s working poor can actually do more harm.

But Andrew Jackson, national director of social and economic policy with the Canadian Labor Congress, says most research disagrees with the CFIB’s findings.

Jackson says the Organization for Economic Co-operation and Development (OECD) has found minimum wage increases do reduce the gap between lower and middle-income workers, leading to lower poverty rates.

“Other studies have found that there are positive effects of higher minimum wages for employers,” he adds.

Workers who earn more stick around longer, cutting back on training costs while boosting productivity.

However, retaining employees may not always be the best thing for them or the economy, according to Morley Gunderson, a professor at the University of Toronto’s Centre for Industrial Relations and Human Resources.

Gunderson says minimum wage increases can put young people at a disadvantage, enticing them to take a higher-paying job instead of pursuing schooling or training opportunities.

“In the U.S., we’re starting to see some evidence of that going on, although in Canada, the evidence is still inconclusive,” he says.

Mandatory minimum wage increases is an issue that continues to split economists and according to a recent CFIB poll, business owners too.

Half of respondents said raising the minimum wage would cause them to cut staff.

The January 2011 poll sampled small and medium sized businesses—the very sector of Canadian industry that Gunderson says is most vulnerable to hikes.

Gunderson points to the U.S., where Wal-Mart is advocating for mandatory minimum wage increases.

A lot of people can’t understand why the retail giant would want to raise workers’ wages when it pays its own employees the bare minimum.

“The answer is because they can afford it. And they know that their competition, the small mom and pop shops, can’t,” Gunderson says.