I would like to know if this is just an impression, but increasing the minimum wage does not seem to be that effective a solution. Prices of food and services increase as a result, so what is the real gain?
Mario Lamanna
In general, yes, wage increases have an effect on inflation. Most economists point to a complex, two-way effect: rising wages in general raise prices, which in turn raise wages as employees negotiate better terms to cope with inflation.
“But the increase in the minimum wage only concerns the remuneration of a very small fraction of all employees,” notes Pierre Fortin, professor emeritus in the department of economics at the University of Quebec in Montreal and a leading specialist in question. The increase in the minimum wage can therefore only have a microscopic influence on the consumer price index. »
In 2023, the Quebec Statistics Institute counted 177,000 minimum wage jobs, or only 4% of the salaried workforce in the province.
By definition, minimum wage workers also have lower purchasing power than other citizens, since they are the lowest paid in society. The impact of their salary on the rise in prices is therefore all the more marginal: there is little chance that they will increase the price of new cars, homes for owner-occupiers, plane tickets or luxury foods, For example.
Effective increases
This is also what makes the increase in the minimum wage particularly relevant to improve their condition, since the increase in their income does not itself increase the price of what they consume.
“On net, an increase in the minimum wage considerably increases the real purchasing power of low earners,” notes Pierre Fortin, who has devoted his research to the issue.
Conversely, salary increases affecting civil servants, health workers, construction workers and education workers, who are very numerous in society, have a greater impact on inflation.
Increases faster than inflation
In general, Quebec has increased the minimum wage faster than the consumer price index (CPI) 18 out of 25 years since 2000, note researchers Suzie St-Cerny and Luc Godbout, from the Chair in taxation and public finance from the University of Sherbrooke.
In their latest study in April 2024, they note that the minimum wage increased by 26%, while the CPI increased by 20% during this period.
With each increase, organizations such as the Canadian Federation of Independent Business and the Conseil du patronat du Québec highlight the effect it will have on the prices of products and services sold by SMEs.
This effect is real, recognizes Pierre Fortin. But inflation is calculated across the entire economy. “It represents a very small fraction of all prices overall. »
Given its benefits on the purchasing power of the most vulnerable in society, “we want to have a minimum wage as high as possible, but not to the point of spreading unemployment among workers at the bottom of the scale,” points out Pierre Fort.
According to him, this is therefore the criterion which should guide the government’s policy in this area: not making the situation of the poor worse by discouraging employers from hiring them.