Small businesses get hammered, good workers lose money, and the buck gets passed to the middle class

The minimum wage was never meant to be a living wage, it was an entry level wage that you would want to move up from.

That is a paraphrase of a quote from a well read, extremely intelligent and successful person.

Every time a minimum wage discussion happens, usually when a politician or political party is attempting to buy votes from an underinformed electorate, this point is brought up as a reminder that we’re not fixing anything doing the same thing over and over again.

With that in mind, on October 1, the minimum wage in Ontario is being raised from $16.55 to $17.20. And shortly thereafter everything we buy from a retail shop, every service we use, everything will go up by a similar percentage (3.9 percent) to account for this.

Let’s look at minimum wage increases in the past 16 years. It began with gradual and relatively reasonable increases from $8 per hour in 2007 to $11.60 in 2017. Then it jumped to $14 per hour in 2018, and has been $16.55 since 2023, and now the upcoming wage increase again in October 2024.

Raising the minimum wage hurts more people than it helps, especially when the raise comes in drastic jumps – including the lowest earners it’s supposed to be helping.

How does it hurt everyone?

It all comes down to the cause and effect a minimum wage increase has on the economy.

Small businesses now have to pay their lowest end workers more money, cutting into their bottom line right off the bat.

Then, in order to retain longer term employees, good businesses run by quality leaders and intelligent people will then need to give all those employees a raise to show appreciation, status, and keep up their spending power.

Well, good organizations and businesses do that, bad businesses run by people who shouldn’t be in their leadership don’t do that – they complain they have no money to spend and try to convince their staff they have no other options.

But I digress, as you see above more money for the lowest level employees means more money for the higher-level employees. So, either this means a business is taking less profits while maintaining their price levels for their customers, or they’re maintaining (and even growing) their profit levels.

Many small businesses even have to take less profits while raising prices (and keeping them reasonable) in order to keep up with wages. There are even those where the owner (the one who should be making the most) is making the lowest wage to keep up with minimum wage increases and their residual effects.

Oh, and big corporations making tens and hundreds of millions – even billions – don’t want to take a hit. They have stakeholders to answer to and create profits for, so they either raise their prices or they make staff cuts to balance the impact of minimum wage increases.

Whether that’s right or wrong is besides the point. Those blaming corporations for driving up inflation are false (to an extent). Sure, many made billions of dollars, and yes, they could give substantial raises to employees, but then they would need to raise prices to offset those costs.

Those corporations have budgets and profit margins to hit and are answering to hundreds, even thousands of stakeholders – including many in the middle class who want their retirement investments to increase not decrease.

Plus, the majority of businesses in Canada, and I’d venture on the planet as a whole, are small businesses. See the aforementioned reasons why they need to charge more, and thus minimum wage increases drive inflation.

The end result is everyone paying more for the same products and services they use.

Here is an easy example to follow.

A farmer paying farm hands to collect and package wheat now has to pay more so he charges the bakery (big or small) more money to offset the labour, utilities, fuel and equipment costs.

Now, the bakery has to pay more for the wheat (plus all the other ingredients), pay more for the transportation of these ingredients, pay more for their utilities, fuel and equipment costs, and they have to pay their staff more, so the price goes up on either the wholesale or retail (depending on the size of the bakery).

The retailer (think your local grocery store) now has to pay more on the wholesale product, more on the transportation, more on their staff, and more on their utilities. So, the price goes up.

Now, the consumer ends up paying more for their bread.

People can blame all types of things on the current inflation situation, but it was coming in one form or another due to the massive minimum wage increases we’ve seen in the past 15 years.

It’s funny how proponents of these minimum wage increases are the ones complaining constantly about the price we pay for everything … oh, taxes, and this and that … guess what? Taxes are based on a percentage of the cost of a good or service – the cheaper the good or service, the lower the taxes.

Listen, if you have no ambition and just want to earn the bare minimum, that’s your prerogative. Enjoy not having the same things as those who have worked harder and earned their lifestyles (no matter what lifestyle fits you).

But let’s not pretend the minimum wage increases we’ve seen isn’t directly the cause of higher prices on everyday items we rely on.

And let’s not pretend that the people really being hurt are those of us who have worked our butts off to own a home and cars, and now are suffering because the lowest common denominator of humanity doesn’t want to work more for more, they want everything handed to them and expect no consequences.

But I’m not heartless, I understand not everyone’s situations allow them the ability to get to the next level without a little help.

That’s why I have written about some solutions I feel would help everyone and eliminate the negative impact of a way too high minimum wage, too many tax breaks and rebates or credits, big government spending, and unnecessary social services spending.

One idea I have and wrote about is a thoughtful Basic Income plan you can read here: Time for Universal Basic Income.

And another is a tax reform that the Fraser Institute study came up with that you can see here: Tax Reform.

These constant minimum wage increases are nothing more than smoke screens that have no real-life positive impacts on anyone except the governments who use them as political tools to buy votes.

The negative impacts to the middle class, small business owners, and hardworking goods and services producers is easy to see.