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Changes to minimum wage and their impact on the economy

Written by:
Staff Writer

The increase in the minimum wage may influence our economy. It impacts the job market, housing market, and has major financial implications overall.

There are two different types of minimum wage, federal and provincial.  The federal minimum wage is set by the Canadian government and only applies to workers in sectors regulated by the federal government. These sectors include telecommunications, banks, postal services, airports, road and transportation services. 

The provincial minimum wage is set by individual provinces. These industries are the ones most impacted by the provincial minimum wage: casinos, restaurants, resorts, bars, retail stores, and food and beverage services.  

We will be examining the effects of the new federal minimum wage, which has gone up from $16.55 to $17.30, on April 1st, 2024. In 2021, the Trudeau government set new guidelines to increase the minimum wage yearly to flow with Canada’s rate of inflation. They’ll do this by matching increases to the Consumer Price Index (CPI).

To comprehend the impact of a higher minimum wage on your life, we will analyze its positive and negative effects on the economy.


Here are a few advantages of raising the minimum wage.

Extended labour support

Increasing the minimum wage gives unemployed Canadians more incentive to find gainful employment. It motivates people to stay employed and work longer hours for more pay.

When more people get jobs in Canada, they stimulate the economy overall. This means that more people can spend their money on purchasing items and paying taxes, which helps maintain essential industries such as health care, education, and transportation. 

Less employee turnover

One of the biggest reasons someone leaves their job is finances. Higher minimum wages improve employment stability by providing better compensation for one’s labour. This, in turn, increases the desire to stay with an employer.

​Job stability is crucial for a strong economy. When people feel secure about their jobs, they are more likely to spend their money, which helps the economy grow overall.

Decreases the disparity in wages

Canada established the minimum wage in the 21st century to bridge the pay gap between men, women, and children. 

In fact, according to the Canadian Women’s Foundation, Canada has the eighth worst gender pay gap out of more than 20 nations. 

In 2007, the wage gap was around 16 %, according to Statistics Canada. It narrowed to 12% by 2022. According to the Canadian Women’s Foundation, this pay gap is wider for women of colour, indigenous women, and women living with disabilities. 

The increase in minimum wage narrows the wage gap, which then impacts the economy. By narrowing the wage gap, more Canadians can take part in the economy and contribute to the development of their country as a whole. 

Boost the economy

When the government raises the minimum wage, it serves to help some struggling families get out of poverty. They’ll have the means to cope better with inflation and the increasing costs of groceries, utility bills, and rent. This, in turn, benefits the economy.

Reduced crime

There’s a significant connection between the economy and crime. As the economy grows we see less crime. With more people having access to the funds to live, fewer people are compelled to commit crimes.


Here are a few reasons cited by critics who argue against increasing the minimum wage: 


Many large companies can handle a rise in minimum wage. However, some small businesses in industries like manufacturing, wholesale, and retail may not be able to afford to pay their employees more money. To stay afloat, these smaller businesses may implement cost-saving measures. This could be:

  • Letting go of people
  • Reducing employee hours
  • Cutting back on employee benefits
  • Outsourcing labour

Each of these measures means less money cycling through the Canadian economy. This slows down the economy’s growth and then less production of goods and services overall.

Increases don’t address the root cause

According to Canada Without Poverty, in 2020, 1 in 4 children were living in poverty. There are many socio-economic issues linked to poverty. While increasing the minimum wage helps, it doesn’t solve the problem of poverty. In order to actually solve the problem of poverty other factors, like access to education, would also need to be addressed.

Restriction to education keeps people in poverty. Without higher education, they can’t get higher-paying jobs. Having a good job means a better quality of life for them, their family, and Canada. Higher-paying jobs are good for the economy. It means more goods and services are being bought and more taxes are being paid.

Prices go up

There’s an innate Catch-22 built into minimum wage.

Many businesses raise their prices or service fees to compensate for increased employee pay. Minimum wage earners receive higher income, but this leads to an increase in prices, causing everyone to pay more. As a result, minimum wage earners end up in the same financial position as before.

Automation or AI may replace many jobs

Raising the minimum wage could lead employers to rely more on machines or artificial intelligence to save on labour costs. Automations are often focused on low-level skill jobs. This leads to higher unemployment, especially for those entering the job market.

Final Thoughts

Despite the many benefits of increasing the minimum wage to the Canadian economy, there are also some drawbacks to consider. Now that minimum wage increases are correlated with the CPI, we may see these pros and cons compound. Or, the economy may change in some other way, yet to be determined. Either way, it’s an important change to be aware of and keep updated on.

Is earning minimum wage making it difficult to keep on top of credit card debt? We can help! Contact one of our trained Credit Counsellors for a free consultation.

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