Minimum-wage hike hurts youth employment

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This article was published 01/10/2014 (4049 days ago), so information in it may no longer be current.

Fall brings with it the provincial government’s annual tradition of raising Manitoba’s minimum wage. As of today, the minimum wage rises to $10.70 per hour, the 11th hike in 10 years. While the government says it’s the only way to protect the purchasing power of the poor, this argument doesn’t stand up to scrutiny. What’s worse, this policy hurts youth employment opportunities.

After the 2014 hike, Manitoba will have the second highest provincial minimum wage in Canada, behind only Ontario. Although the government claims it is protecting minimum-wage earners from inflation, the truth is minimum-wage hikes have led inflation, not followed it. Over the last 10 years, minimum wage has gone up 48 per cent, while inflation has only gone up 18 per cent. Clearly something else is at play.

Government raises the rate far faster than inflation largely to compensate for a provincial income tax system that burdens minimum- wage earners like no other in Canada. And that burden is increasing. Since 2005, provincial income taxes charged on minimum-wage earners increased 19 per cent due to the government’s refusal to index the basic personal tax exemption. And that doesn’t include the higher tax burden on them due to the regressive PST hike.

Conveniently, that 19 per cent mirrors the minimum-wage hike in excess of inflation. In effect, small businesses are forced to pay higher wages because minimum-wage earners are exposed to higher taxes due to income tax “bracket creep.” Basically, this means although most Manitobans make more money each year, our broken tax system makes it such that the real purchasing power of their paycheque actually shrinks.

And so government uses businesses to “fix” their taxation problem, by forcing entrepreneurs to pay more. This tactic not only hurts small business, it also has negative consequences for Manitoba’s youth.

Statistics Canada says the largest portion of minimum-wage earners are youth. Nearly 60 per cent of minimum-wage earners are between the ages of 15 and 24. Three out of four of these youth are enrolled in an educational program. Simply put, these are young Manitobans trying to get valuable experience in the work world while earning their education. Many of these first-time jobs are at independently-owned small businesses.

Large and incessant minimum-wage hikes hurt the ability of entrepreneurs to provide entry-level jobs for these young Manitobans. In a survey of Manitoba CFIB members, 46 per cent of respondents stated higher minimum wages resulted in reduced hiring of youth. More than 25 per cent of respondents said they would also have to reduce the hours of their current staff and/or lay off staff in response to a rate hike.

In other words, when the cost-per-worker goes up thanks to a minimum-wage hike, small businesses mitigate that cost increase through less staff. That usually means having fewer entry-level positions, jobs that are frequently filled by youth. Unfortunately, fewer positions equates to less work experience, less income and bigger student debt for our young people.

CFIB has always advocated for practical ways to help low-income earners, such as additional income tax relief and more training opportunities, rather than higher minimum-wage rates. Eliminating income tax “bracket creep” would protect the earnings of all low-income Manitobans from higher taxes and remove the need for large, continuous minimum-wage hikes that hamper youth employment. It’s not a big ticket fix — eliminating “bracket creep” would cost only about 0.1 per cent of the province’s annual spending.

Countless studies show today’s youth face an uphill battle to achieve the prosperity realized by their parents. The Manitoba government must stop putting up additional hurdles for them through excessive minimum-wage hikes. Let’s hope they have the courage to make this policy choice based on economic facts rather than current political spin.

Elliot Sims is the Manitoba director of provincial affairs with the Canadian Federation of Independent Business (CFIB).

msman@cfib.ca Twitter @CFIBMB