A new report by the Canadian Federation of Independent Business (CFIB) warned that mandating a $20 per hour living wage across Canada could cost the economy $44.9 billion in additional wages and place nearly 600,000 small businesses at risk of becoming unprofitable.
The report "Affordability, Minimum Wages, and Living Wages: Striking a Balance for Small Businesses" analyzed the potential impact of such a policy, which various organizations are currently considering.
The report highlighted the significant financial strain that a $20/hour living wage would impose on small businesses, suggesting that current minimum wage and living wage policies often fail to effectively support the most vulnerable workers.
Beatrix Abdul Azeez, a CFIB policy analyst, emphasized the need for governments to adopt a new approach to addressing affordability challenges without overburdening small businesses. "Governments should shift away from relying on these blunt tools and instead adopt a new approach to ensure workers can cope with the rising cost of living while also guaranteeing that small businesses aren't unfairly burdened,” Azeez said.
Recent increases in minimum wages have already had adverse effects on small businesses. The CFIB report noted that 60 percent of small businesses were forced to raise wages for other workers, and 59 percent had to increase prices, contributing to inflationary pressures. Additionally, 31 percent of small businesses cut back on hiring young and unskilled workers, while 25 percent reduced overall employment.
"Canada's cost of living crisis requires a more effective framework: making sure rent, food, and gas prices are affordable and stable while extending support to workers and small businesses through tax reductions," added Jairo Yunis, CFIB's director for BC and western economic policy. "This would go a long way in addressing Canada's affordability shock."
The CFIB report made several recommendations for government action, including alleviating the impact of rising minimum wages on small businesses by reducing other taxes and payroll costs, such as small business tax rates, CPP, EI, and health/education payroll taxes. It also suggests establishing a minimum wage-setting process that is predictable, transparent, reflective of market conditions, and mindful of economic impacts.
Furthermore, the report recommended linking minimum wage adjustments to private sector wage growth or a predetermined percentage of the median wage. To address the root causes of the affordability crisis, the CFIB advocated for policies that increase housing supply, reduce energy taxes, and remove interprovincial and international trade barriers. Additionally, it called for targeted fiscal support for vulnerable workers through reduced personal income tax rates, increased basic personal amounts, and expanded tax credits.