What is a minimum wage raise?

The minimum wage is the lowest hourly rate employers can legally pay their employees. Federal or provincial/territorial law or labour union agreements typically set these rates. In Canada, minimum wage rates vary among provinces and territories, and many jurisdictions adjust these rates to match inflation and the cost of living.

Pros of raising the minimum wage

As with any economic policy, raising the minimum wage has its advantages. The benefits of this change can include the following:

Economic boost

Workers receiving higher wages often have more disposable income for goods and services. Increased consumer spending can encourage economic growth by driving demand in various industries, from retail to hospitality. As people spend more, businesses experience higher sales, generating a healthier economy.

Job creation

As the economy grows with increased spending, businesses start to see more demand for their products and services. Companies might need to hire more employees, leading to more available jobs. This effect can benefit retail and food services, where consumer demand closely aligns with workforce needs.

Family support

Raising the minimum wage can support low-income families, helping them deal with rising costs and boosting their wellbeing. With higher wages, workers can better afford necessities like housing, food and healthcare. The increase can lift many families out of poverty and reduce their reliance on social assistance programs.

Potential cons of raising the minimum wage

In contrast, there are also challenges with changing the minimum wage, including:

Increased operational costs

Higher wages can raise business operational costs, especially for small and medium-sized enterprises (SMEs) with tighter profit margins. To offset these costs, businesses might increase the prices of their products or services, causing higher costs for consumers and possibly contributing to inflation. Raising the minimum wage can create a cycle where increased rates don’t achieve the results intended.

Hiring challenges

Some businesses might reduce their workforce or slow down hiring to manage expenses if forced to pay higher wages. This strategy can lead to fewer job opportunities, especially for entry-level positions or roles typically filled by minimum-wage workers. Consequently, it can be harder for young people or those entering the job market for the first time to find employment.

Outsourcing

Companies may outsource jobs to regions where wages are lower to help control labour costs. This practice can reduce local job opportunities as businesses move roles abroad to maintain profitability. While outsourcing can help organizations manage expenses, it can also hurt the job market, especially in vulnerable industries.

Benefits of raising the minimum wage for employers

Beyond the economic benefits, increasing the minimum wage can also benefit employers by:

• Improving productivity: Employees who feel that they are paid fairly are likelier to be efficient in their roles, leading to higher work quality, fewer errors, and better performance.
• Boosting employer reputation: Companies that pay fair wages generally have a reputation as desirable workplaces. Their positive image can attract top talent, enhance brand perception, and even increase customer loyalty, as consumers often prefer to support businesses that treat their employees well.
• Reducing absences: Fair wages can mean fewer financial stresses for employees and fewer sick days. Employees less worried about making ends meet are more likely to be present and engaged at work.
• Improving employee health: Higher-wage staff can typically afford better healthcare, nutritious food, and a more balanced lifestyle. Healthier employees tend to have fewer absences and are more energized at work.
• Enhancing innovation: Employees who feel secure in their jobs often feel more confident contributing innovative ideas and solutions. A motivated workforce can boost creativity and help your business stay competitive.

Tips to determine if you should increase your base pay

When considering raising the minimum wage, Canadian businesses can take a holistic approach with the following strategies:

Assess the cost of living

Consider rising housing, groceries and transportation costs, and anything else that can impact your employees’ financial wellbeing. Staying on top of these changes can help your business appeal to potential employees who are evaluating their employment based on financial stability.

Review workforce quality

If your team’s performance needs improvement, higher wages could encourage better results and attract stronger candidates. Competitive pay can enhance job satisfaction and morale, increase productivity, and produce a more engaged team. Investing in your employees through better compensation can reduce turnover and save on hiring and training costs.

Check market rates

You could perform regular market research to understand the average salaries for similar positions and adjust accordingly. If a wage increase isn’t possible, consider adding to employee benefits like vacation time, flexible working arrangements, or extra health coverage. These perks can give your employees additional value and help offset any wage gap.

Consider long-term impact

While higher wages can boost employee retention and performance, they may also affect your bottom line. Plan ahead by budgeting for potential wage increases and evaluate how they align with your business growth strategies.

Communicate openly

If you decide to offer raises or adjust benefits packages, explain these changes clearly to your employees. Transparency in decision making can build trust and help employees understand how much their compensation package is worth.

How to prepare for a minimum wage increase

Getting your business ready for a wage increase can be manageable with the right approach. Here are some tips on how you can prepare for this change:

• Determine payroll impact. Calculate the additional costs and consider how they can alter your budget.
• Reallocate funds. Look for areas where you can transfer funds or reduce expenses to accommodate the wage increase without sacrificing essential operations.
• Change pricing strategies. Consider raising the prices of your products or services to offset higher wage costs. Keep in mind how price changes might impact your market competitiveness.
• Value proposition. Enhance your value proposition to justify price increases to customers by highlighting the quality of your offerings and the benefits they provide.
• Streamline processes. Look for ways to improve efficiency in your operations, like automating tasks, reducing waste, or optimizing workflows to lower costs.
• Cross-train employees. Train employees to handle multiple roles to reduce the need for additional hires, helping you manage wage increases without expanding your workforce.

Frequently asked questions about raising the minimum wage

Here are some answers to FAQs about raising the minimum wage:

How does the minimum wage impact the cost of living and poverty rates in different regions of Canada?

The minimum wage can influence poverty rates and the cost of living by providing a baseline income for workers. In regions with higher living costs, higher minimum wages can help workers cover basic expenses, but the effectiveness in reducing poverty may vary depending on the wage level and local economic conditions.

Will raising the minimum wage lead to job losses?

Some studies show that modest increases have little to no effect on employment, while others say that large increases could lead to job losses, particularly for low-wage and entry-level positions.

Are the minimum and living wages in Canada different?

Yes, the minimum wage is the legal minimum employers must pay their employees. In contrast, the living wage is the needed amount to cover essential living expenses, like food, housing and transportation. In most regions, the living wage is higher than the minimum wage, reflecting the actual cost of living.