The Province of Ontario has announced that the minimum wage will increase to $11/hr effective June 1, 2014. A quick Google search displays a myriad of opinions on the subject – it will help the poor – it will destroy small business – it is not enough – it is far too much. People believe what they want to believe and there is likely a kernel of truth in every position.
Someone said to me, “I guess this is bad for you – bankruptcies will be way down”. Leaving aside their assumption that I don’t want the number of people filing for bankruptcy to decrease – untrue, but to be argued on another day – this statement shows a bias which is quite common in our society.
Most people think the individuals that file for bankruptcy are either under or unemployed, living on minimum wage or on government assistance. The working poor. An increase in the minimum wage must therefore be a boon for these people and may allow some to avoid filing for bankruptcy.
While this may be true for a very small segment of the people that find themselves in financial difficulty, it is not the working poor that file for bankruptcy. The average bankrupt looks a lot like the average Ontarian. They are in their 40’s, have a family, and earn around $40,000 per year before tax. They are not the person making $10.25 in the food service industry.
What sets them apart is the level of debt which they have managed to accumulate. Our average client owes about $60,000 in unsecured debts. The older the client the higher the debt.
A person working for minimum wage doesn’t accumulate $60,000 in debt. Granted, it doesn’t take as much debt to force them into financial difficulty, but individuals in this income bracket simply don’t have the same access to credit as higher earners have. The family working for minimum wage is worried about the rent and putting food on the table. The family facing bankruptcy is worried about their credit cards, lines of credit, car payments, insurance, and because of those things, how to pay the rent and put food on the table.
I don’t know if increasing the minimum wage will reduce poverty levels and financial discomfort in Ontario. For someone working 40 hours per week at minimum wage it may add another $100 a month to their paycheque and that will help those families, no doubt.
I do know that it will not have an appreciable effect on the number of people that have to file for bankruptcy. Bankruptcy is not about how much you earn, rather it is all about how much you owe.
Our most recent infographic about the face of the average bankrupt.