Unless you’re living under a rock you’ve heard business-y people talk about the labour crunch, inflation and minimum wages at some point since May.

You’ve probably either lost staff or hired new staff and suffered sticker shock yourself. The effects of the unprecedented labour market crunch and inflation rates are heightened for business owners.  And there’s plenty of fear-mongering about the correlation between inflation and minimum wages. Better Way Alliance Director (and Economist) Lili Camacho explains that, contrary to what big business lobbies would have you believe, it’s a good business strategy to raise wages for minimum wage workers right now

Wage demands aren’t the cause of inflation pressures or changing jobs

Recently, the cost of living has risen higher and faster than in the last 40 years. The US is having an is-there, isn’t-there argument about the “R” word – recession. Research shows that this inflationary cycle isn’t caused by increases in pay. Unlike other inflationary periods in history, where inflation and minimum wage were linked (higher wage demands drove prices up) – this time around, workers aren’t getting raises while corporations are posting bigger profits. In other words, workers are losing purchasing power. 

This is happening at the same time as Canada and the US face an unprecedented labour reshuffle. COVID sparked workers to re-think what they want in a job, causing many people to change employers, and many workers took an early retirement or left the job pool. Retail and hospitality industries especially have taken a huge hit as workers who have left these industries haven’t come back. In other industries that have gained new workers, the huge wave of new hires has meant low productivity rates as new staff get up to speed on processes, skills and procedures. 

What it means is that businesses are having trouble attracting and keeping well-trained staff. And with the steep rise in the cost of living, it’s unsurprising that a small increase in pay is an attractive reason to switch employers for staff at the bottom of the pay scale. So yes, inflation and minimum wage are linked – but not in the way the lobbyists are claiming.

Won’t a pay raise just add to inflation?

Big business lobby groups say raising wages would only add to inflationary pressures. But a small increase in the bottom wages puts more money into the pockets of those who need it most and more money circulates in the local economy. It means workers can afford to buy more – and local businesses sell more.

This avoids a situation where the local economy grinds to a halt: shoppers stop buying a croissant at their local bakery and date nights become Netflix-and-chill instead of dining out. Without going into too much of the economics, what happens next is that small businesses close, local jobs are lost, and the economy suffers big-time. That boom-and-bust cycle is scary and it’s what governments are trying to prevent. 

In fact, in 2018 Ontario raised the minimum wage and it was enough to raise GDP levels a healthy amount. Because it wasn’t a blanket increase in money supply, it boosted the local economy and was good for businesses. 

Not only will it boost the economy, it’ll help you be a workplace where staff want to stay

Better Way Alliance members are business owners who already pay higher than minimum wages as part of a holistic approach to Ethical Employment. BWA members know it’s a huge reason for employee attraction and retention. Anita Agrawal, owner of Jewels 4 Ever / Best Bargains and BWA member says,

“Paying competitive rates means that we don’t have to worry about our team leaving and we don’t have to worry about retraining costs. When a key sales person leaves a team, they can sometimes take clients with them. Paying fair wages is a good way to ensure our staff stay on – some have been with us for more than 20 years. To show our gratitude to staff during the pandemic when they felt worried and vulnerable, we increased wages by 12%.” 

Anita’s experience shows that during crises – like this inflation and minimum wage squeeze – it’s a business win to treat staff better. At the Better Way Alliance, we hear story after story about better staff commitment, cohesion, and cooperation because of good pay, fair scheduling, and paid sick days. Right now, small businesses that can offer exceptional levels of service by seasoned employees will excel – because so many shops are busy training up new staff. Consider training your staff on advanced skills like management and public relations, because opportunities for growth are a top driver of staff loyalty. 

If raising the lowest wages is a good thing, why is there so much fear around higher pay?

Opposition is coming from corporations – the big box stores who have recently posted record profits. In recent years, corporations have consolidated more market power and are now under investigation for using that market power to drive up prices on purpose and keeping the profits. It’s called profiteering, and the Toronto Star and TVO suggest it might be happening in the food, wheat, auto, and mining sectors.

It’s this group that is spreading fear about the labour shortage, inflation and minimum wage – but it’s easy to see that this opposition is unfair and inappropriate. It casts Ontario’s poorest workers in a bad light, when all they’re doing is asking to be paid enough to live in dignity. The Better Way to building more resilient economies and jobs is simply to provide better livelihoods to staff.

Inflation and minimum wage can be a confusing and nuanced topic but one thing is certain – paying more than minimum almost always ends up benefitting local businesses, their employees, and consumers.