How the OW program keeps recipients out of employment
| Summary One of the largest changes in Ontario’s social policy over the past thirty years has attracted remarkably little attention. In 1995, before the Harris cuts, a single person’s welfare payment was equivalent to 56% of full-time minimum-wage earnings. By 2026, that figure had fallen to just 24%. Over that period, minimum wages increased substantially faster than inflation, while Ontario Works rates lost about 43% of their purchasing power. A full-time minimum-wage worker now earns more than four times the basic income of a single person on Ontario Works. This widening gap has had two important effects. First, it has made employment far more financially attractive than welfare. It also gives minimum-wage workers a powerful reason to remain employed rather than turn to social assistance. Ontario Works rates could rise substantially without coming close to making welfare more financially attractive than full-time work. Second, the growing gap has done little to help long-term welfare recipients compete for those increasingly attractive jobs. Employers select applicants who can do the work, not those with the greatest financial incentive to work. Applicants with stable housing, transportation, recent experience, appropriate clothing, savings and family support often have advantages that prolonged poverty has stripped from people receiving Ontario Works. The earnings rules compound the problem. Ontario Works still exempts only $200 in monthly employment earnings, unchanged since 2013. Meanwhile, in 2023, Ontario increased the ODSP earnings exemption fivefold, from $200 to $1,000. Why recognize the importance of protecting earnings for one group while leaving the other behind? We usually understand hunger and homelessness as consequences of poverty. But they can also become causes of continued unemployment. People without adequate food, stable housing or transportation are less able to compete for work, however attractive the wages may be. Ontario has created an enormous financial incentive to leave welfare while allowing the conditions necessary to make that transition to deteriorate. We have made the prize bigger, the starting line poorer and the competition tougher. The extraordinary thing is not simply that this happened. It is that we have barely discussed it. |
Introduction
There is a statistic about Ontario’s welfare system that ought to have generated thirty years of policy debate. Instead, it has remained almost invisible.
In 1995, before the Harris government cuts, a single person’s welfare payment amounted to 56% of what someone earned working full-time at the minimum wage.
Today, that figure is 24%.
Think about that for just a moment.
We have more than halved the relative value of welfare compared with minimum-wage employment. Yet we continue to talk about welfare and work incentives as though the financial relationship between the two has barely changed.
Meanwhile, our television screens are filled with encampments, food-bank lineups and stories of people unable to afford the necessities of life. Advocates call for higher welfare rates. Governments talk about employment. The familiar debate continues.
But something much bigger has happened, almost without our noticing.
Ontario has made employment substantially more rewarding while making life on welfare progressively less sustainable. And in doing so, it may have made many long-term welfare recipients less capable of competing for the jobs that would allow them to leave.
That is an incentive trap.
The great divergence
In 1995, a single person received $663 a month in welfare. The minimum wage was $6.85 an hour.
The Harris government cut the welfare payment by 21.6%, to $520. That reduction was widely debated as it should have been.
But what followed was arguably just as consequential.
Welfare rates continued to lose purchasing power. Minimum wages, particularly from the mid-2000s onward, began increasing faster than inflation.
By 2018, the single Ontario Works rate had reached $733, where it remains today. Meanwhile, the minimum wage rose to $17.95 an hour in October 2026.
The result is a transformation in the economics of welfare that has received remarkably little sustained attention.
Table 1. Thirty years of Ontario Works, minimum wages and earnings incentives
| Year | OW single rate, monthly | Minimum wage, hourly | Full-time annual wages | OW as % of full-time wages | OW monthly earnings exemption |
| 1995, before cut | $663 | $6.85 | $14,248 | 55.8% | Different rules |
| 1995, after cut | $520 | $6.85 | $14,248 | 43.8% | Different rules |
| 2013 | $626 | $10.25 | $21,320 | 35.2% | $200 |
| 2018 | $733 | $14.00 | $29,120 | 30.2% | $200 |
| 2026 | $733 | $17.95 | $37,336 | 23.6% | $200 |
Full-time employment assumes 40 hours weekly and 52 weeks annually, before deductions. The $200 exemption introduced in 2013 remains unchanged in 2026.
Restoring the purchasing power of the single welfare rate to its pre-cut 1995 level would require approximately $1,284 a month today. Instead, the payment is $733—a loss of about 43% of its original purchasing power.
Minimum wages, by contrast, have risen approximately 39% in real terms over the period, based on the calculations underlying this paper. A full-time minimum-wage worker now earns more than four times the basic monthly income of a single Ontario Works recipient.
If the purpose of low welfare rates was to create a powerful financial incentive to work, Ontario has succeeded beyond anyone’s expectations.
Why, then, do we still discuss welfare as though insufficient incentives were a central problem? And why has the collapse from 56% to 24% not become one of the defining measures in Ontario’s social policy debates?
We regularly measure poverty rates, caseloads, unemployment and minimum-wage increases. Yet this extraordinary change in the relationship between welfare and wages has attracted little attention as a policy event in its own right.
It has happened incrementally, across governments of 3 different political stripes. Each budget could be discussed on its own terms. Each minimum-wage increase could be celebrated. Each welfare freeze could pass with relatively little notice.
But the cumulative result escaped the debate.
We have changed the economic foundations of social assistance without seriously reconsidering the assumptions on which the program operates.
What employers see that policymakers miss
I have talked to employers who hire people receiving Ontario Works.
They want to give people opportunities, but they are frustrated by the rules and by the differences they sometimes encounter between recruits coming from welfare and those hired through ordinary channels.
Those not on assistance often arrive with phones, laptops, appropriate clothing, better grooming, recent work experience, transportation and a little money in reserve.
They may have family members who can help when something goes wrong.
A long-term Ontario Works recipient may have few of these advantages.
Employers notice. Sometimes other employees notice too, leaving employers uncertain how to explain differences in preparation or performance without disclosing private information about a person’s welfare history to other employees.
I agree that such disclosure is not a good answer. But the problem tells us something important.
Employers do not hire people according to who has the greatest financial incentive to work. They hire the applicants they believe are most likely to do the job successfully.
Someone who has been living on $733 a month must compete with applicants who have not endured the same prolonged deprivation or financial restrictions.
That is not a competition between the deserving and the undeserving, or between people who want to work and people who do not. It is a competition between people with unequal resources.
And the welfare system may be making that inequality worse.
The people who succeed often have something to fall back on
There is another pattern worth examining.
People who successfully leave Ontario Works for employment often have something that others lack. It may be a good education, recent work experience, family assistance, stable housing or a network of friends and former colleagues.
They have social and human capital.
Perhaps they have experienced a temporary setback and simply need to get back into the swing of things. But consider someone who has been receiving Ontario Works for more than a year.
Savings may have disappeared. Clothing and equipment have worn out. Work experience has become dated. Housing may have become unstable. Health and social connections may have deteriorated.
The person has not necessarily become less motivated. The person may simply have become less competitive.
Ontario Works and Employment Ontario already classify people according to their employment needs and readiness. But those classifications become increasingly artificial when the economic circumstances of long-term recipients continue to deteriorate.
An assessment cannot supply a stable home, a functioning laptop, transportation or money to survive until the first paycheque. Nor can it remove the competition from applicants who already possess those things.
We have built an elaborate employment-services system around an income-support system that may be steadily undermining the very capacities employment services are supposed to develop.
Eleven hours—and the curious case of ODSP
The contradiction becomes even clearer when we examine earnings exemptions.
In 2013, Ontario introduced the current $200 monthly earnings exemption for Ontario Works.
After the qualifying period, recipients can earn $200 in net employment income before assistance is reduced. Above that amount, Ontario Works generally deducts fifty cents for each additional dollar of net earnings.
In 2013, $200 represented 11.3% of full-time minimum-wage earnings.
Today, it represents just 6.4%.
At $17.95 an hour, eleven hours of minimum-wage work produce approximately $200 in gross earnings.
The exemption has lost about 43% of its value relative to minimum wages.
Table 2. How earnings exemptions have deteriorated
| Year | Minimum wage | Monthly earnings exemption | Exemption as % of full-time wages |
| 2013 | $10.25 | $200 | 11.3% |
| 2018 | $14.00 | $200 | 8.2% |
| 2026 | $17.95 | $200 | 6.4% |
The government has dramatically increased the financial reward for obtaining full-time employment while allowing the incentive for taking the first steps into work to deteriorate.
But now consider what happened to the Ontario Disability Support Program.
In February 2023, the Ford government increased the monthly earnings exemption for a person with a disability receiving ODSP from $200 to $1,000.
A five-fold increase.
It also changed the deduction on earnings above the exemption from 50% to 75%, so the change was not an unqualified improvement at every earnings level. Nevertheless, the first $1,000 of net employment earnings became fully exempt.
Ontario Works recipients were left with the $200 exemption. The distinction is extraordinary.
The government recognized that allowing ODSP recipients to retain more earnings could encourage employment and strengthen financial security. Indeed, that was part of its stated rationale.
But why was the same reasoning not applied to Ontario Works, the program explicitly designed around employment?
And unlike Ontario Works rates, ODSP core rates have also been indexed to inflation since 2023.
The government has demonstrated that it understands the value of protecting earnings and maintaining purchasing power. It has simply chosen not to apply those principles consistently across its two principal social assistance programs.
The irony deserves considerably more attention than it has received.
The competition has changed
There is something else about rising minimum wages that we seldom acknowledge in welfare debates.
Minimum-wage jobs are not reserved for people on welfare.
Students apply for them. Newcomers apply for them. People seeking second jobs apply for them. People with recent work experience, education, transportation and family support apply for them.
And as minimum wages have increased faster than inflation, these jobs have become more financially rewarding.
That is good news for workers. But it does not mean that the most disadvantaged applicants will get the jobs.
An employer offering $17.95 an hour can select someone with substantial advantages over a person who has been surviving on $733 a month.
Higher minimum wages have increased the reward from employment. They have not necessarily increased the ability of long-term welfare recipients to compete for employment. Meanwhile, workers outside welfare can generally save money, accept family help, share accommodation and organize their financial affairs without an employer reducing their wages.
There is a second effect that deserves attention. The widening gap also makes it much less attractive for people already earning the minimum wage to turn to Ontario Works. At $17.95 an hour, full-time work pays more than four times the basic OW rate. Even a substantial increase in OW would leave a large financial advantage to working. The rate would have to rise enormously before it approached full-time minimum-wage earnings. So, the widening gap both helps keep employed workers off welfare and leaves long-term recipients struggling to compete with them. These are two quite different effects of the same policy.
Ontario Works recipients face asset tests, reporting obligations, income deductions and rules governing household circumstances.
These restrictions may serve administrative purposes, but they can also impede the accumulation of the very resources that make employment possible.
A person needs savings to repair a car, money for work clothing, a reliable telephone and sometimes help from family.
These are not luxuries. They are part of the infrastructure of employment. Yet the welfare system can make acquiring them more difficult.
What hunger and homelessness have to do with work
This brings us back to the food banks and encampments.
We usually understand hunger and homelessness as consequences of inadequate income.
They are.
But they may also be causes of continued unemployment.
Someone without stable housing may struggle to maintain regular hours. Someone who cannot afford adequate food may find physical work more difficult. Someone without transportation, a telephone or appropriate clothing may lose an opportunity before an interview even begins.
Prolonged poverty can erode employability. And the longer someone remains on Ontario Works, the more serious that erosion may become. This is the possibility that our conventional debate about welfare incentives has largely overlooked.
We have assumed that making welfare less attractive would encourage people to leave. But making people poorer does not necessarily make them more employable.
Indeed, beyond a certain point, the opposite may be true. The financial incentive to work grows larger while the capacity to respond to it grows weaker.
That is not an argument against minimum-wage increases. Nor does it establish that welfare policy alone explains homelessness, hunger or long-term unemployment.
It is an argument for recognizing that the incentive to work and the ability to obtain work are two different things.
The policy debate that never happened
There is something remarkable about the relative silence surrounding this transformation.
Imagine if a government had announced in 1995 that, over the next thirty years, it intended to reduce the value of single-person welfare from 56% to less than 24% of full-time minimum-wage earnings.
Imagine that it also announced that the earnings exemption would eventually represent only a little more than 6% of full-time minimum-wage earnings.
There would have been a major debate about the consequences for poverty, employment, health, housing and the relationship between social assistance and the labour market.
Yet that is broadly where we have arrived.
No government needed to announce the whole transformation. It happened through the interaction of welfare cuts, inadequate increases, freezes, minimum-wage policy and earnings rules that failed to keep pace.
The changes were individually visible. Their cumulative effect was not.
We have no shortage of discussions about poverty rates, benefit adequacy, work incentives and employment services. What we have lacked is a sustained discussion of how these policies interact over time.
And that interaction may be central to understanding why people remain on assistance despite the enormous financial reward available from employment.
The incentive trap
Ontario has spent thirty years increasing the financial incentive to leave welfare.
It has also allowed welfare rates and earnings incentives to deteriorate, while maintaining restrictions that can make it harder to accumulate the resources necessary for employment.
At the same time, minimum-wage jobs have become more financially attractive to a broad range of applicants, many of whom arrive with advantages that long-term welfare recipients no longer possess. The widening wage gap helps keep those already working off assistance, but it does not help those on assistance win the competition for jobs.
The result is a peculiar kind of policy failure. We have created an enormous reward for leaving welfare while doing too little to preserve the capacity of long-term recipients to compete for that reward.
And when they fail to leave, we continue to talk about incentives.
Perhaps the next discussion about homelessness, hunger or welfare reform should begin with a different question. Not whether welfare is sufficiently unattractive. Not whether the minimum wage is sufficiently attractive.
But whether our social assistance system is helping people acquire and retain the resources necessary to compete successfully for employment.
After thirty years, we have made the prize bigger, the starting line poorer and the competition tougher. The extraordinary thing is not simply that this happened. It is that we have barely discussed it.