The Minimum Wage Bully Dance

“To address income imbalances in our society, other measures ought to be considered. A guaranteed minimum income, or an increase in Canadians’ income tax exemption levels could be amongst other measures that may be contemplated. But if we are to support higher minimum wages in the food industry, increasing it by 32% in 12 months is simply irresponsible, and perhaps even reckless.”

On January 1 the minimum wage in Ontario increased by 22%, to $14 an hour. It will go to $15 on January 1, 2019. That is almost a 32% increase in 12 months. This obviously puts pressure on many businesses to recalibrate operating budgets. Other provinces such as Alberta and BC will follow suit. The food sector, the largest of all sectors and where many workers earn the minimum wage, is coping with major headwinds.

The minimum wage “controversy” got more exposure recently when letters from two Tim Horton’s franchise owners, already mixed into contractual clashes with parent company Restaurant Brands International, were leaked. These letters stated that employees would no longer have paid breaks and that some benefits would be withdrawn because of higher wages. Early reports implied that the entire chain was taking part in this, which of course was inaccurate. Even Premier Kathleen Wynne weighed in on the Tim Horton’s situation by stating in an interview that the owners where acting like bullies. In doing so, she simultaneously offered a sad display of flawed economics.

The reality is that Tim Horton’s, in the grand scheme of things, was unfairly targeted by Premier Wynne. Most small businesses in the food sector are likely making similar changes out of necessity. Her government’s policy on the minimum wage simply created the bullies she speaks of. In government there is generally little or no understanding of how franchising works, or how food distribution forces playout, or even simply how small businesses operate. A typical restaurant pays it employees anywhere between 25% to 35% of total revenue. Therefore, a 32% hike in 12 months is a significant bump. In addition, most businesses employing personnel at a minimum wage cannot increase prices. According to a recent study on the food service industry published by the Journal of Labour Research, operators could increase prices of limited skilled-labour intensive food items by no more than 3% over a period of a few years. That is far short of what is needed to offset increase costs of labour. To remain profitable, and survive, operations need to cut and adapt.

It would make economic sense if workers in the sector required career development plans within the sector and that wages were imbedded into an employee retention strategy. But most earning the minimum wage in the food sector are either young students or are retirees looking to make some extra money. Last year, more than 42% of workers in the food service were under the age of 24 and almost 24,000 retired seniors were working in the sector. For many of us, working in food service was the first opportunity to be part of the labour force. This in turn taught us about how to be part of larger organisations and to work as part of a team. Such experiences led to better experiential training, increased and transferable skills. With a higher minimum wage, less opportunities will likely be offered as a result.  

The push for the proverbial 15$ hourly wage is largely based on the will to rebalance wealth for the bottom end of the income scale. It is indeed a noble objective which can serve the less fortunate of our society. There is no doubt that the evidence of a wealth imbalance in our economy is mounting. The Canadian Centre for Policy Alternatives states that several studies spanning over 20 years point to how the overall economy can grow because of higher minimum wages, and more jobs would be created as a result. For years now, it has challenged the conventional wisdom which suggests that jobs will be lost if regulated minimum wages are increased.

Perhaps, but most of these studies used by the Centre claim that overall productivity would increase because of higher wages. Such an argument is purely academic. Few studies have looked at food service or distribution sectors, low-margin, and high-turnover environments. With higher wages the temptation for enhanced automation and the use of artificially intelligence only increases with time. We are slowly seeing more automation within restaurants already, with self-serve ATMs and checkouts popping up everywhere. Over the past few years, the Canadian labour market has undergone a quiet transformation as companies increasingly relinquish full-time employees. This is especially seen in the food industry. Minimum wage hikes will only accelerate the process in food service and distribution. 

To address income imbalances in our society, other measures ought to be considered. A guaranteed minimum income or an increase in Canadians’ income tax exemption levels could be amongst other measures that may be contemplated. But if we are to support higher minimum wages then increasing it by 32% in 12 months is simply irresponsible, and perhaps even reckless.