An Analysis of the Economic Impact of Ontario's Minimum Wage Increase

This report provides an in-depth analysis of the economic implications of the minimum wage increase in Ontario, Canada. It examines the policy's effects on the labor market, including employment levels, wage structures, and the potential for job losses. The report discusses the anticipated benefits for low-wage workers and the challenges faced by employers, such as increased production costs and potential business relocation. It incorporates economic models to illustrate the supply and demand dynamics within the labor market, highlighting the risk of unemployment due to decreased employer demand. The analysis considers both the short-term and long-term consequences of the wage hike, drawing on statistical data and relevant economic literature to support its conclusions. Ultimately, the report assesses the mixed outcomes of the policy, emphasizing the need for careful consideration of its multifaceted impacts on the economy of Ontario.

Running head: MINIMUM WAGE INCREASE IN ONTARIO
Minimum Wage Increase in Ontario
Name of the Student
Name of the University
Author Note

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Table of Contents
Overview....................................................................................................................................2
Research Analysis......................................................................................................................2
Conclusion..................................................................................................................................4
Bibliography...............................................................................................................................6

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Overview
The economic regulatory policies, monetary as well as fiscal ones, taken by the
governing authorities of a country, have considerable implications on the population of the
country, the implications having the chance of being positive as well as negative. Keeping
this aspect of the economic policies into account, the concerned report tries to discuss and
analyse the effects of the minimum wage hike policy, which has been implemented in
Ontario, Canada, in the recent periods. The minimum wage of Ontario, which has been at a
moderate standard of $11.60 an hour in the last few years, have been hiked considerably by
the governing authorities, amounting to $14 per hour per worker, as has been announced on
1st January, 2018. The minimum wage rate in Ontario is also expected to rise to $15 per hour
per worker in the succeeding year1. This wage hike has brought considerable implications on
the labour market as a whole, the implications being both negative as well as positive and the
hike in the minimum wage of the region is expected to have effected not only the workers but
also the employers operating commercial organizations in this region2. The considerable
implications of this decision and the gravity of the situation in the overall business scenario
of Ontario, is identified and discussed in the concerned report.
Research Analysis
The increase in the minimum wage in Ontario has on one hand is expected to have
increased the welfare of the workers, especially those belonging to the lowest paid cartel of
the work force, consisting of the marginalised workers. The hike in the minimum wage is
also expected to benefit those workers who are not categorically the lowest paid ones3. They
1 Mahboubi, Parisa. 2018. "The Ripple Effect Of Ontario’S Minimum-Wage Increase". The Globe And Mail.
https://www.theglobeandmail.com/report-on-business/rob-commentary/the-ripple-effect-of-ontarios-minimum-
wage-increase/article38017258/.
2 In.reuters.com. 2018. "Minimum Wage Hike Has Rocky Start In Canada's Ontario Province". IN.
https://in.reuters.com/article/us-canada-wages-ontario/minimum-wage-hike-has-rocky-start-in-canadas-ontario-
province-idINKBN1EX2CN.
3 Meer, Jonathan, and Jeremy West. "Effects of the minimum wage on employment dynamics." Journal of
Human Resources (2015).

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are expected to be benefitted due to the ripple effect of the minimum wage hike in the
country as the employers may need to hike their wages in order to maintain the comparative
hierarchy in the organizations, according to the skill levels of the employees.
However, the increase in the minimum wage of Ontario has exerted pressure on the
employers and entrepreneurs in the region, as they are now required to pay much more to
their workers4. As can be seen from the recent statistics, there has been a significant decline
in the total number of part time employees in Ontario itself, with almost 59,000 jobs getting
lost in the contemporary period. Given this scenario, the increase in the wage hike is not
expected to have helped considerably the employees or the employers5. The problem is not
expected to be confined to the employers only and is also expected to affect the employees as
can be seen with the help of the following figure:
Figure 1: Effects of increase in the minimum wage6
4 Schmitt, John. "Why does the minimum wage have no discernible effect on employment?." Center for
Economic and Policy Research 22 (2013): 1-28.
5 Mahboubi, Parisa. 2018. "The Ripple Effect Of Ontario’S Minimum-Wage Increase". The Globe And Mail.
https://www.theglobeandmail.com/report-on-business/rob-commentary/the-ripple-effect-of-ontarios-minimum-
wage-increase/article38017258/.
6 "12.3 Labor Markets At Work | Principles Of Economics". 2018. Open.Lib.Umn.Edu.
https://open.lib.umn.edu/principleseconomics/chapter/12-3-labor-markets-at-work/.

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As can be seen from the above figure, with the increase in the minimum wage, above
that of the equilibrium wage level, the supply of labour is expected to increase as more
workers are expected to be willing to work. However, due to the increase in the cost of
production, the employers are expected to reduce their demand for employees and may be
only willing to employ the high skilled and productive workers, thereby showing a reduction
in the overall demand in the labour market, which creates an excess supply in the labour
market leading to unemployment generation in the economy.
Given this scenario, the employers in this region are expected to feel the pressure of
increased cost in their production process, which may hamper the productive efficiency of
these businesses. The business may either tend to relocate from Ontario to some other region
with lower minimum wages or may also try to lay off the low skilled workers and demand for
the higher skilled ones in order to keep their productive efficiency constant. This in turn, is
expected to increase the demand for high skilled workers, thereby increasing their wage,
which again can have mixed implications on the employers as well as the workers and on the
overall economic welfare of the region7.
Conclusion
As can be seen from the above discussion, the minimum wage hike in Ontario, in the
beginning of the current year, is expected to have mixed outcomes on the economy of the
region as a whole. The results are still not clear as it takes time to observe the multilateral
implications of such policies. However, there remains a chance of higher cost pressures on
the employers and the marginal employees or low paid workers also face the threats of
layoffs in the current scenario, which in turn can lead to the creation of a chronic
unemployment problem in the region in the log run.
7 Cbc.ca. 2018. "Canadians Are The Guinea Pigs In A Real-Life Minimum Wage Experiment: Don Pittis | CBC
News". CBC. http://www.cbc.ca/news/business/minimum-wage-experiment-1.4473095.

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Bibliography
"12.3 Labor Markets At Work | Principles Of Economics". 2018. Open.Lib.Umn.Edu.
https://open.lib.umn.edu/principleseconomics/chapter/12-3-labor-markets-at-work/.
Cbc.ca. 2018. "Canadians Are The Guinea Pigs In A Real-Life Minimum Wage Experiment:
Don Pittis | CBC News". CBC. http://www.cbc.ca/news/business/minimum-wage-
experiment-1.4473095.
In.reuters.com. 2018. "Minimum Wage Hike Has Rocky Start In Canada's Ontario
Province". IN. https://in.reuters.com/article/us-canada-wages-ontario/minimum-wage-hike-
has-rocky-start-in-canadas-ontario-province-idINKBN1EX2CN.
Mahboubi, Parisa. 2018. "The Ripple Effect Of Ontario’S Minimum-Wage Increase". The
Globe And Mail. https://www.theglobeandmail.com/report-on-business/rob-commentary/the-
ripple-effect-of-ontarios-minimum-wage-increase/article38017258/.
Meer, Jonathan, and Jeremy West. "Effects of the minimum wage on employment
dynamics." Journal of Human Resources (2015).
Schmitt, John. "Why does the minimum wage have no discernible effect on
employment?." Center for Economic and Policy Research 22 (2013): 1-28.