In May, the Ontario government rolled out a wide-ranging labour plan which will increase the minimum wage to $15 per hour in 2019, as well as provide extra vacation time and equal pay for workers. In September, average hourly wages rose as a result of tightening in the labour market. This lesson plan will examine the implications of both economic events.
Appropriate Subject Area(s):
Economics, labour economics.
Key Questions to Explore:
- How will a $15 minimum wage affect regions outside Toronto?
- What is the relationship between a minimum wage and an average wage?
- What age group will be most affected by the $15 minimum wage?
- What factors led to the wage increases in September?
Labour force, wage growth
A copy of the article
Introduction to lesson and task:
In September, the average hourly wage was up 2.2% year over year, after a prolonged period of slow wage growth. This growth is likely due to Canada’s historically low unemployment rate, which has lead to tight market conditions.
Potential impact of average hourly wage growth: An increase in hourly wages could lead to higher prices as Canadians start spending their additional discretionary income. If this occurs, there is a high chance that inflation in the Canadian economy will meet the Bank of Canada’s 2% target and as a result the Bank increase its policy interest rate, which is currently 1%, before the end of 2017.
In May, Ontario announced its plan to increase the minimum hourly wage to $15 in 2019, and also provide extra vacation time and equal pay for workers. A recent study conducted by the Fraser Institute concluded that the minimum wage hike would likely threaten jobs outside the Toronto area.
This lesson plan will explore the findings of the Fraser Institute, as well as the impact faster wage growth could have on the broader Canadian economy.
Action (lesson plan and task):
- Ask your students to state the factors that lead to increased wage growth in Canada.
Hint: Wage growth has largely been due to a tightening job market, with historically low unemployment.
- Ask your students to state the potential impacts of wage growth on the Canadian economy.
Hint: Answers could include any of the following:
- An increase in Canadians’ standard of living as individuals will gain higher discretionary income which they can either use towards spending or saving.
- It could lead to increased productivity, as employers will be incentivized to maintain efficiency.
- An increase in inflation as a result of rising demand for goods and services.
- Increase in interest rates by the Bank of Canada.
- Ask your students to critically think about some reasons why the Ontario government decided to increase the minimum wage to $15 per hour
Hint: Answers could include the following:
- To improve working conditions.
- To increase the standard of living in Ontario.
- To maintain fair workplace practices.
- Ask your students to state how a $15 minimum wage will affect regions outside Toronto.
Hint: Answers could include the following:
- The increase in minimum wage will shrink the the gap between average wages and minimum wages in regions areas outside Toronto, especially in Northern Ontario and regions within the rust belt. Generally, the closer the minimum wage in a given region is to the average wage, the more likely there will be less employment opportunities available. The $15 minimum wage could lead to the loss of 50,000 jobs outside Toronto.
- Ask your students to explain the relationship between the minimum wage and the average wage.
- Ask your students to state the age group that will be most impacted by the $15 minimum
Hint: Young adults (i.e. 16-24 year olds) will be impacted by the negative impacts of the increase in minimum wages, as they are more likely to hold minimum wage jobs.
- Ask your students to explain how the rise in minimum wages will impact employers.
Hint: It will lead to an increase in employers’ payroll costs and may impact their profitability.
- Ask your students to explain how employers are likely to respond to a rise in employment income.
Hint: All things being equal, an increase in minimum wage will lead to an increase in salary and a reduction in profit for employers. In order to maintain profit, employers may explore the following courses of action:
- A reduction in staff either through firing or a hiring freeze.
- Automation: that is the process of utilizing machinery as a substitute for human labour.
- Raise prices of goods and services.
Consolidation of Learning:
- Ask your students to explain how automation could impact employees.
Hint: It could lead to job losses but an increase in the productivity of employees.
- After completing this lesson plan your students should be able to understand the impact an increase in minimum wage will have on the economy and the impact that wage growth has on the economy.
- Ask your students to explain why wage growth is a positive sign for the Canadian economy.