Research on the Change of Minimum Wage in Ontario

ABSTRACT The purpose of this research paper is to analyze the minimum wage in Ontario based on the current minimum wage is $10. 25 in Ontario. The minimum wage mainly happens to the unemployed women and the young. The research on the minimum wage can permit people to contribute to the discussion about the ongoing minimum wage policies in Ontario and the relevant impacts of raising the minimum wage in this province. This research paper will be divided into three parts. Firstly, this research paper will represent the introduction to the writing significance.

Secondly, this paper will analyze the change of minimum wage in Ontario, which also be divided into third sub-parts. In the first place, this paper will introduce the theoretical framework. In the second place, this paper will introduce the general situation on the change of minimum wage in Ontario. Next, this paper will analyze the importance of minimum wage in the labor markets. And a conclusion will be made in the end. Research on the Minimum Wage in Ontario 1. Introduction

The minimum wage is generally considered as a controversial policy tool[1]. The minimum wage is one of potentially useful tool for redistribution of social wealth because it can increase the wages of low skilled workers[2]. However, other factors of production may become the expense for the increase of low skilled workers’ wage, such as the wages of higher skilled workers and capital. Therefore, it is essential to analyze how the minimum wage becomes $10. 25 today and the impacts of the change of it.

The purpose of this research paper is to analyze the minimum wage in Ontario, which can provide a chance for people to contribute to the discussion about the ongoing minimum wage policies in Ontario and the relevant impacts of raising the minimum wage in this province. Meanwhile, the change of minimum wage in Ontario can be influenced by some factors. 2. The Analyses of the Change of Minimum Wage in Ontario In labor economics, the minimum wage is often analyzed in a competitive labor market model and a model in which the employers are granted with some degree of monopsony power. 1. The Theoretical Framework on Minimum Wage

The competitive labor market model involves the demand side and supply side. The demand side refers to the demand of labors of all the firms in the market. The supply side can illustrate that firms in the market have to pay higher wages to attract and retain workers. In the graph of competitive labor market model, there are the market supply curve and the demand curve, and these two curves have a cross point, which can be considered as the equilibrium wage rate. When a minimum wage is introduced in a competitive labor market, the reduction of employment will rely on the steepness of the labor demand curve.

Meanwhile, the decrease in employment will lead to the increase in the wage rate in the competitive labor market[3]. 2. The General Situation on the Change of Minimum Wage in Ontario In 1991, the then current level of minimum wage in Ontario was $5. 40 per hour[4] and the relevant authorities and governments in Ontario proposed that the minimum wage in Ontario should be raised to “a level of 60 percent of the average Ontario wage by 1995”, which made Ontario become the province with the highest minimum wage level in Canada[5].

However, during the period from 1995 to 2002, due to conservatives in office in Ontario, the minimum wage did not increase[6]. Theoretically, all the people in Ontario may suffer minimum wage. However, in practice, most of people suffering minimum wage are low skilled individuals holding low-paying jobs[7], including students, liquor servers, homeworkers, etc. What’s worse, in Ontario, the minimum wages of students’ liquor servers and homeworkers are less than general minimum wage. For example, the minimum wage of liquor servers is about $1. 00 per hour less than general minimum wage.

Over the past two decade years, some significant changes of minimum wage have happened to Ontario. Firstly, the liberal government raised the minimum wage from $6. 85 per hour in 2003 to $8. 00 per hour in 2007. Meanwhile, the Ontario Employment Standards Acts became effective in March, 2010, which regulates that the general minimum wage in Ontario is $ 10. 25 per hour. Nominally, the minimum wage increased by 50% from 1995 to 2010, but due to the increase of the price level and appreciation of dollar, the real value of the minimum wage just raised by 10% during this period. According to

Reid, the nominal minimum wage between 2007 and 2010 increased 28% from $8. 00 to $10. 25, however, due to the increase of price level, the real minimum wage increased by 23% during this period. As a result, from the above analysis, it is reasonable to gain the conclusion that the nominal minimum wage in Ontario increased to larger extent, however, the real increase of minimum wage in Ontario was not significant. 3. The Impacts of the Change of Minimum Wage in Ontario This part will analyze the employment effects and the distributional effects of the change of the minimum wage in Ontario analyzed in the prior part.

There are some discussions on the employment effects of minimum wage. Some people hold the opinions that minimum wage has a negative impact on employment, but other people think that there is little impact on employment impact. According to this paper, there is indeed a negative impact of the increase of minimum wage on the employment. Canadian evidence can prove that a 10% increase in the minimum wage probably lead to the reduction of the employment of students by 3%-6%[8]. On the contrary, the effects on the young adults are slight.

Since the Ontario is the province with the highest minimum wage in Canada, the adverse employment effects have been exacerbated. What’s worse, the unemployment rate has risen due to the increase of minimum wage in Ontario[9]. Moreover, the relationship between minimum wages and poverty is too vague. For example, the people suffering minimum wage are always very poor and due to the minimum wage, the wealthy gap between the poor and the rich become larger and larger. However, due to the increase of minimum wage, some of social wealth has been transformed to the poor to realize the redistribution of social wealth[10]. . Comparability to other province Minimum wages are diverse among different province in Canada. British Columbia’s minimum wage is $10. 25 that is the same as Ontario’s and Alberta is $9. 75 that is lower than Ontario’s[11]. The unemployment rate of Ontatio is 7. 8 , British Columbia’s is 6. 7 and Alberta’s is 4. 6. [12] This evidence might lead to that lower minimum wage plays a role in the low unemployment rate in Alberta. But since the minimum wage in Ontario is the same as British Columbia’s, the unemployment is different though. The effect of minimum wage on uneployment is ambuglous. . Conclusion In conclusion, lower-skilled people in Ontario, including the students, homeworkers and liquor servers, are suffering minimum wage and even, their minimum wage level is less than general minimum wage level. Since 1990s, there have been some continuous and significant nominal changes happening to minimum wage in Ontario. However, in fact, due to the increase of price level and appreciation of dollar, the increase of minimum wage in Ontario is not significant. Meanwhile, the changes of minimum wage have some effects on employment and redistribution of social wealth.

Although the increase of minimum wage in Ontario may increase unemployment rate, it can realize the redistribution of social wealth to narrow the wealthy gap between the rich and the poor. Bibliography Cousineau Jean-Michel, Tessier David and Vaillancourt. 1992. The Impact of the Ontarian Minimum Wage on the Unemployment of Women and The Young in Ontario. Industrial Relations: 47(3), 559-566. Gunderson, Morley. 2007, Minimum Wages: Issues And Options for Ontario. Ontario: Ontario Ministry of Finance. [cited on Feb. 28th, 2013]. Available from World Wide Web:< http://keqianxu. okee. com/1306641. html>. Lee David, and Saez Emmanuel. 2008. Optimal Minimum Wage Policy in Competitive Labor Markets. NBER Working Series of National Bureau of Economic Research. No. 14320. Reid Frank. 2012. Monopsony in the Labour Market and Minimum Wages. Department of Economics and Centre for Industrial Relations& Human Resources. Shannon Michael, and Beach Charles. 1995. Distributional Employment Effects of Ontario Minimum-Wage Proposals: A Microdata Approach. Canadian Public Policy: 21 (3), 284-303. Susan Munroe. 2013. Minimum Wage in Canada.

Available from About. com: Statistics Canada, Labour Force Survey. 2013. Annual Average Unemployment Rate Canada and Province. Available from Government of Newfoundland and Labrador website: . ———————– [1] Lee David, and Saez Emmanuel. 2008. Optimal Minimum Wage Policy in Competitive Labor Markets. NBER Working Series of National Bureau of Economic Research. No. 14320 [2] Lee David, and Saez Emmanuel. 2008. Optimal Minimum Wage Policy in Competitive Labor Markets. NBER Working Series of National Bureau of Economic Research. No. 14320. [3] Reid Frank. 2012.

Monopsony in the Labour Market and Minimum Wages. Department of Economics and Centre for Industrial Relations& Human Resources. [4] Cousineau Jean-Michel, Tessier David and Vaillancourt. 1992. The Impact of the Ontarian Minimum Wage on the Unemployment of Women and The Young in Ontario. Industrial Relations: 47(3), 559-566. [5] Shannon Michael, and Beach Charles. 1995. Distributional Employment Effects of Ontario Minimum-Wage Proposals: A Microdata Approach. Canadian Public Policy: 21 (3), 284-303. [6] Reid Frank. 2012. Monopsony in the Labour Market and Minimum Wages.

Department of Economics and Centre for Industrial Relations& Human Resources. [7] Cousineau Jean-Michel, Tessier David and Vaillancourt. 1992. The Impact of the Ontarian Minimum Wage on the Unemployment of Women and The Young in Ontario. Industrial Relations: 47(3), 559-566. [8] Gunderson, Morley. 2007, Minimum Wages: Issues And Options for Ontario. Ontario: Ontario Ministry of Finance. [cited on Feb. 28th, 2013]. Available from World Wide Web:< http://keqianxu. bokee. com/1306641. html>. [9] Gunderson, Morley. 2007, Minimum Wages: Issues And Options for Ontario.

Ontario: Ontario Ministry of Finance. [cited on Feb. 28th, 2013]. Available from World Wide Web:< http://keqianxu. bokee. com/1306641. html>. [10] Lee David, and Saez Emmanuel. 2008. Optimal Minimum Wage Policy in Competitive Labor Markets. NBER Working Series of National Bureau of Economic Research. No. 14320. [11]Susan Munroe. 2013. Minimum Wage in Canada. Available from About. com: [12] Statistics Canada, Labour Force Survey. 2013. Annual Average Unemployment Rate Canada and Province. Available from Government of Newfoundland and Labrador website: .