The employment rate and the ability to hire will not remain the same if the government legislates a significant increase in wages.
Employment opportunities come from the government, large corporations, small businesses or other individuals. I wish to look at this last group of employer.
There are many potential employers who need to work but must have others (an employee) to help with child care, dependants with special needs, care for parents and senior care. The question is, how much money does this group of employers need to earn so they can hire someone else when the minimum wage changes from $11 an hour to $15 an hour? The employer should be able to retain and live on an income equal to or greater than the minimum wage after they hire a minimum wage employee.
To understand if an employer has the financial ability to hire an employee, we must look at the employer’s net salary, not their gross salary.
To hire an employee at $11, it will cost an employer $440 per week plus the employer’s share of EI and CPP, so $468.50 per week. At $15 an hour, the cost will be $600 plus $40.06 for $640.06 per week.
If an employer earns $33 an hour ($68,640 per year), their gross pay is $1,320 a week. However, their net pay is the gross income minus CPP, EI, income tax, union dues and pension contribution, for $852.14 a week. To hire an employee at $11/hour, the employer has $852.14 per week minus 468.50 per week, for $384.08 a week. The employer is left with less than they pay the employee, and less than minimum wage. It is not reasonable to expect an individual with this income to become an employer.
The employer should be able to retain and live on an income equal to or greater than the minimum wage after they hire a minimum wage employee.
At $44/hour ($91,250 annually), an employer who is paying into a pension plan has a gross weekly wage of $1,760 and a net pay of $1169.76. After hiring an employee at $11 per hour they will retain $701.26 per week, almost 50 per cent above minimum wage. However, to employ someone at $15 an hour, the employer will keep $1,169 minus $640.06, for $529.70 per week. This is 20 per cent below minimum wage. The threshold salary for an employer that will enable them to hire someone at $11 an hour is a rate of pay of approximately $40 an hour ($83,200 per year).
At $55 an hour, an employer has a gross wage of $2,200 per week and a net wage of $1,304.52 a week minus $640.06, for $664.48 per week. The threshold salary for an employer is now approximately $55/hour ($114,400 a year).
Because of the current progressive tax increases, the gap between gross income and net income increases significantly as gross wages increase. When the minimum wage is $11 an hour, an employer must earn more than $40 an hour if they expect to keep a minimum wage for their own living expenses after all deductions, including the payment for an employee. When the minimum wage is increased to $15 an hour, the employer must earn $55 an hour or more to cover deductions and payment for the worker and keep at least a minimum wage for their own living expenses.
Two conclusions should be obvious when we increase minimum wages from $11 to $15 an hour:
- The number of potential employers and available jobs will decrease.
- People who must hire another person so they can go to work must find employment that exceeds a gross income of $114,000 per year.
Otherwise, there is no incentive to work and, unfortunately, some of these may well become unemployed and depend on government assistance instead of becoming an employer.