Canada’s New Federal Minimum Wage: Too Narrow and Too Low

On December 17, 2021, the Trudeau government announced with fanfare that it planned to institute a $15 federal minimum wage. The wage came into effect on December 29, 2021. Every April 1, beginning this year, the new federal minimum wage will be adjusted based on Canada’s Consumer Price Index.

While this is a positive development for workers covered by the federal minimum wage, the initiative leaves much to be desired.

Too Narrow

First, it is important to understand the highly limited scope of the new federal minimum wage.

Specifically, the new federal minimum wage applies only to the federally regulated public and private sectors. The federal regulated private sector includes airlines and airports, banks, Canada Post Corporation, courier services, port services, oil and gas pipelines that cross international or provincial borders, radio and television broadcasting, telecommunications and railways.

The many sectors to which the new federal minimum wage does not apply include most of the oil and gas industry, the construction industry, restaurants, hotels, the agricultural sector and the retail sector.

This is important because, according to Statcan, as of 2018, 59% of minimum wage workers worked in retail trade, hotel and food services. Many others work in agriculture and construction. Therefore, although the Trudeau government has boasted about the number of workers who will directly benefit from the new federal minimum wage (“over 26,000”), the vast majority of Canada’s minimum wage workers will not benefit directly from it.

The limited scope of the federal minimum wage undoubtedly relates to the division of powers between the federal government and the provinces under Canada’s constitution. Specifically, under section 92 of the Constitution Act, provinces have exclusive legislative jurisdiction over “property and civil rights in the province.” The Courts have held that this legislative power normally includes labour relations.

Nevertheless, nothing prevents the federal government from seeking to incentivize the provinces and non-covered businesses to raise their minimum wage.

For example, the federal government could offer to increase federal transfers to provinces with a higher minimum wage.

Also, another lever the government could use is federal contracts. In particular, the government could mandate that only companies which pay the federal minimum wage will be eligible for such contracts. These contracts can be quite lucrative for the employers to which they are awarded, giving many of them a significant incentive to implement in their businesses the federal minimum wage.

In fact, that is exactly what the Biden administration has just done in the United States. On November 22, 2021, the U.S. Department of Labor published a Final Rule implementing a $15 per hour minimum wage for federal contractor workers who work on or in connection with covered contracts. A White House official highlighted not only the direct benefits to employees of federal contractors who are currently paid less than $15 an hour, but also argued that the new requirement “will have impacts beyond federal contracting, as competitors in the same labor markets as federal contractors may increase wages, too, as they seek to compete for workers.”

From a constitutional perspective, it might also be possible for Parliament to amend the Canada Business Corporations Act, a federal law, to require all corporations formed under that law to pay a robust minimum wage. This would result in wage gains to a large swath of workers in Canada because many of Canada’s major corporations were formed under the Canada Business Corporations Act.

Too Low

Quite apart from its highly limited scope, the new federal minimum wage is simply too low.

The income that a family actually needs to be able to live and work in their community, or the “living wage”, is substantially higher than $15/hour in major Canadian cities. In 2021, the living wage was over $22 in Toronto and Halifax, over $20 in Vancouver, and over $18 in Calgary, Edmonton and Ottawa.

There simply is no legitimate reason for the federal government to allow employers who are within its legislative jurisdiction to pay less than a living wage.

‘Free market’ ideologues often claim that a higher minimum wage lowers employment, but as economist Jim Stanford explains, careful empirical evidence from countries around the world shows that the impact of higher minimum wages on employment is negligible, and under certain conditions even positive. Also, employment is determined by far bigger and stronger factors than wage regulation (such as investment, economic growth, and government policy).

In 2021, Canada’s Big Six banks, which are covered by the new federal minimum wage, collectively earned record-high profits of $57 billion. These banks are among the most profitable corporations in the world. In 2020, their CEOs were paid an average of about $10,000,000 each in compensation. Without a doubt, Canada’s big banks can easily afford to pay to all of their employees a living wage, but the Trudeau government seems more interested in preserving their gigantic, perennial profitability than ensuring that all of their 300,000 employees, many of whom live in Canada’s most expensive cities, can lead a decent life.