There is a very strong push to raise minimum wage as an initiative to improve the standard of life for low-income Canadians. However, you never seem to get a full picture of the consequences of an increase.

Here is a simple example.

Let’s say your local coffee shop employs 30 people; they have 5 employees working 24 hours per day, 7 days per week.

Minimum wage is $14 per hour. Their current labour cost would be $14x5 = $70 per hour. Add to this an additional 14% for employer payroll taxes, WCB etc. and they spend approximately $80 per hour on labour. This equates to about $58,000 per month in wages and taxes.

Now, let’s assume that minimum wage increases to $16 per hour. Their monthly labour cost becomes $66,400 per month. An increase in excess of $100,000 per year!

How is this coffee shop going to recover that labour increase? Simple, they raise their prices. 

Use the same scenario for your local Gas Station. If their labour costs increase by $3,000 per month, the only solution they have is to raise the price of fuel. If they raise the price of fuel, everyone’s cost of living increases. If the cost of fuel increases, transportation costs for food, clothing, and everything else increases, so those manufacturers and suppliers raise their prices. 

In a short period of time, the $2 per hour increase in minimum wage has done nothing to solve the standard of living problem, it has merely contributed to inflation.

Let’s look at this same scenario from the employees’ perspective.

Jane works 30 hours per week at the coffee shop, earning the minimum wage of $14 per hour. Her weekly net pay would be about $367. 

When the minimum wage increases to $16 per hour, Jane’s weekly net pay would be about $408, an increase of $41 per week. Notice that although she would gross $60 per week more, taxes eat up $19 per week or about 30% of the increase.

But, her daycare providers costs for utilities, food etc. have increased so the daycare raises their price by $25 per week, fuel has gone up, food has gone up;

The increase in minimum wage has solved nothing.

This of course is a very simple example for a very complicated situation; one could argue that the time lag between the increase in minimum wage and the subsequent price increases elsewhere would provide a period of time where low-income earners were better off, but it would not last long and the cycle would continue.

A Little Perspective

People always like to make references to other places for comparison, such as “minimum wage in Australia is $20 per hour”; but is this a fair comparison?

We took the initiative to put it in perspective, using a Big Mac® as the standard. Below are the results