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. »
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 price increases is therefore even more marginal: there is little chance that they will increase the price of new cars, owner-occupied homes, plane tickets or luxury foods, For example.
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.
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.
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’s a very small fraction of all the prices. »
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 that should guide government policy in this area: not making the situation of the poor worse by discouraging employers from hiring them.