Introduction
This research paper aims to examine the impact of minimum wage increases through a societal and economic lens. Additionally, the paper will also look at how the recent nationwide increase in the minimum wage has impacted various businesses. In Canada, minimum-wage employees have been fighting for higher wages for decades. The minimum wage is defined as a ‘living wage’ that ensures workers earn sufficient income to cover basic living expenses (Evans & Fanelli, 2016). While the increase of minimum wage may seem advantageous, it cannot be assumed that it improves all employees' quality of life. It causes strain on both the company and their workers and does not necessarily reduce poverty among the working-class (Sabia, 2008). For example, small businesses are forced to make structural adjustments to compensate for their increased paycheques. As a result, businesses may be forced to reduce the number of employees they have and increase the cost of services for consumers, potentially detrimental (Blais, Cousineau, & McRoberts, 1989). Overall, living expenses vary considerably across Canada, which significantly impacts the quality of life for minimum wage-earning individuals. Although this issue of minimum wage increases is very controversial, this essay will explore its drawbacks for both companies and employees. The main drawbacks discussed will include the increase of operating expenses for companies, higher unemployment for low-skilled workers and young people, and the overall increase in the cost of living for consumers.
The Effects of Increased Minimum Wage in Canada
One of the most evident drawbacks to increasing the minimum wage in Canada is that it will increase the operating costs of companies in the country. The hike from an $11.40 minimum wage to $15 per hour means that companies will have to cough up more money to cover the added expenses. Two most renowned minimum wage experts have recently studied the effects of increased minimum wages on the employer. Professor David Neumark of the University of California and Dr. William Wascher, an economist at the US Federal Reserve Board, reviewed all the academic studies they could find on the effects of increasing the minimum wage in the last 15 years (Simon & Kaestner, 2004). After reviewing the literature, the two scholars indicated that one thing was common. Companies adjust their workforce and their workloads on their employees to compensate for the high costs of operations. Out of the 90 studies that the two scholars reviewed, five were specific to the possible effects of increasing the minimum wage in Canada. The five studies indicated that there would be negative consequences on the increase of the minimum wage, as opposed to the belief that an increased minimum wage would lead to an automatic better life for the beneficiaries (Simon & Kaestner, 2004). A company that has to pay more money to its workers must find alternate ways to compensate for the extra charge. For instance, the company might reduce the number of working hours for most employees, especially low skilled workers. The low skilled workers would also be required to deal with a higher workload, so the company compensates for the extra cost. Most for-profit companies would want to continue realizing the same profits even after increasing the minimum wage for their workers (Sabia, 2008). Some companies might also lay off some of their low skilled workers to create more chances of attaining more profits and maintaining the increased minimum wage. Such a move in a company would translate to a higher workload for the remaining workers. As a long-term effect, the workers who are lucky enough to keep their jobs suffer higher burnout levels because of the extra work they have to do to earn their increased minimum wage. Sometimes, high burnout levels among employees may lead to low productivity and an ultimate low turnover for the company (Sabia, 2008). Companies also resolve to reduce their employees' benefits and cut on the on-job training budget. A company that is required to increase the minimum wage for every employee may not afford to continue offering its employees the job-related benefits. For instance, if the company used to offer paid maternity leave for its employees, it could retract such a benefit to cover the extra cost in minimum wages. The Journal of Labor Economics has stated that for every 10% increase in the minimum wage, there is a 2% drop in formal training levels that employees get from their companies (Manning, 2020). As a result, most employees get stuck in their careers because they no longer have access to in-job training.
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The second most notable drawback of increased minimum wages in Canada is higher unemployment levels for low-skilled workers and young people. Low-skilled workers are mostly employed on a contract basis and sometimes on a part-time basis in most countries. Such people include immigrants with no academic skills, who live from one paycheck to the other. When the minimum wage is increased, companies may not pay all the workers and continue making profits. The companies may, therefore, lay off some of the unskilled workers to reduce their operating costs (Sabia, 2008). Companies also reduce their capacity to hire new employees as they try to minimize their expenses. The low skilled workers who lose their jobs are pushed back to living below the minimum wage and grappling with poverty and the high cost of living. The highest number of people working in Canadian companies, especially in the private sector, are young people and college and high school students (Evans & Fanelli, 2016). These young people rely on the wages they get from their jobs to pay for their tuition and other school expenses. Unfortunately, when companies start to increase their employees' minimum wages and start to look for ways to minimize their operating costs, the working students are most affected by job losses. Most companies do not cut off their skilled employees because of company logistics and contractual responsibilities. However, it is easy to cut off students who do not have any contractual relations with their employers. As a result, many of the students cannot complete their education because they can no longer afford life basics. According to Statistics Canada, 63% of the country's minimum wage workers are people between the ages of 15-24, and 84% of these people still live with their parents (Brouillette et al., 2017). This age bracket constitutes people in their high school and college years and has not gained the stability to live independently and sustain their needs. Most of these workers depend on their wages to supplement their family incomes. When they get laid off from work, they affect the lives of all the people who depend on them.
The third issue with increasing the minimum wages for Canadian workers is the rise in the country's overall cost, especially for consumers. The production companies have to find alternate ways of achieving their profits once they are required to increase their employees' minimum wage. One of the most viable ways of ensuring a company's continued profitability is raising the costs of produced goods and services. The increased costs of products help fill the gaps created by the companies' increased cost of employment. For instance, a company that produces clothes in the country may increase each item's cost by a few cents to cover the added expenses in the cost of production. For instance, a denim jacket that initially went for $2 would cost $2.5 (Evans & Fanelli, 2016). the extra fifty cents in every denim jacket sold would help the company reduce the increased minimum wage's financial pinch. The most affected stakeholder in this cycle is the consumer, who has to dig deeper into their finances to afford the basic things in life. For instance, the cost of food and housing would increase if the food production companies and real estate companies are required to increase their employees' minimum wage. The Canadian consumer needs to pay more for the same quality and quantity of goods and services than they had paid for before the increment in minimum wages (Brouillette et al., 2017).
When companies lay off their employees to minimize the cost of meeting the new minimum wage, families are left struggling on how to meet the basic needs. For instance, a high school student whole gets laid off at work can no longer afford to support the family in meeting the basic needs. The other family members who are fortunate enough to keep their jobs have to cover for the gaps left by the laid-off member of the family. As a result, the cost of living becomes higher for each family member and in the whole country. The increased minimum wage in Canada has been made to look like a new dawn for most people in the country, but it is a very blunt tool to use on people struggling with life.
Conclusion
The increase in the minimum wage for workers in Canada from $11.40 to $15 per hour has been praised as one of the most important government steps to ensure that all Canadians have access to a comfortable life. However, some issues that rose from the move may prompt the country to reconsider the praise it has been showering on the move. One of the issues is that the increased minimum wage in Canada has caused an increased cost of operations in most companies. Every company must find ways to cover the extra costs it has while meeting the new minimum wage. The second issue is that hundreds of young people and low-skilled workers have lost their jobs as companies find ways to reduce their operational costs. As a result, families have been forced to live in poverty because of the lower income levels in each household. The third issue with an increased minimum wage is that the overall cost of living for consumers has increased. Although the increased minimum wage offers better standards of life for Canadians, it also negatively affects the country.
Reference List
Blais, A., Cousineau, J., & McRoberts, K. (1989). The determinants of minimum wage rates . Public Choice, 62(1). doi:10.1007/bf00168011
Brouillette, D., Cheung, C., Gao, D., & Gervais, O. (n.d.). The Impacts of Minimum Wage Increases on the Canadian Economy. Canadian Economic Analysis Department, Bank of Canada. https://www.bankofcanada.ca/wp-content/uploads/2017/12/san2017-26.pdf
Evans, B., & Fanelli, C. (2016). A survey of the living wage movement in Canada: Prospects and challenges. Interface: A Journal for and about Social Movements, 8(1), 77-96. doi:10.18411/a-2017-023
Manning, A. (2020). The elusive employment effect of the minimum wage . Journal of Economic Perspectives.
Sabia, J. J. (2008). The Effects of Minimum Wage Increases on Retail Employment and Hours: New Evidence from Monthly CPS Data . Journal of Labor Research , 30 (1), 75-97. doi:10.1007/s12122-008-9054-1
Simon, K. I., & Kaestner, R. (2004). Do minimum wages affect non-wage job attributes? Evidence on fringe benefits. ILR Review, 58(1), 52-70.
