TIM’S TUSSLE – Just who’s the bully when it comes to minimum wage hikes?

(Image: Mel Rothenburger)?

Senior Fellow
Atlantic Institute for Market Studies

DRAMATICALLY INCREASING minimum wages in the food industry is irresponsible and even reckless.

On Jan. 1, Ontario’s minimum wage increased by 22 per cent, to $14 an hour. It will go to $15 on Jan. 1, 2019. That’s almost a 32 per cent increase in 12 months. Other provinces, such as Alberta and B.C., will follow suit.

Sylvain Charlebois.

This obviously puts pressure on many businesses to recalibrate operating budgets. And the large food sector, where many workers earn the minimum wage, is already coping with major headwinds.

The minimum wage controversy got more exposure recently when letters from two Tim Hortons franchise owners, already mixed up in 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 These letters stated that employees would no longer have paid breaks and that some benefits would be withdrawn because of higher wages.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 inaccurately implied that the entire chain was taking part.

Government generally has little or no understanding of franchising, how food distribution forces play out or even simply how small businesses

Even Ontario Premier Kathleen Wynne weighed in on the Tim Hortons situation, saying the owners where acting like bullies. Her criticism was unfair and displayed flawed understanding of the underlying economics.

Most small food-sector businesses are likely making similar changes out of necessity.

The Wynne government’s policy on minimum wage is actually the bully.

Government generally has little or no understanding of franchising, how food distribution forces play out or even simply how small businesses operate.

A typical restaurant pays it employees anywhere from 25 to 35 per cent of total revenue. Therefore, a 32 per cent hike in wage costs in 12 months is significant.

In addition, most businesses employing personnel at a minimum wage can’t 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 three per cent over a period of a few years. That is far short of what’s needed to offset increased labour costs.

To remain profitable – and even to survive – businesses need to cut and adapt.

Higher wages would make economic sense if career development was part of the equation and those wages were part of an employee retention strategy. But minimum-wage staff in the food sector are either young students or retirees looking for some extra money. Last year, more than 42 per cent of food service workers were under the age of 24 and almost 24,000 were retired people.

For many of us, a food service job was the first opportunity to be part of the labour force. It taught us how to be part of larger organizations and to work as part of a team. That led to better experiential training, and increased and transferable skills. But a higher minimum wage will likely mean fewer such opportunities.

The push to a $15 wage is largely based on the desire to rebalance wealth for the bottom end of the income scale. It’s a noble objective to serve the less fortunate and there’s no doubt our economy’s imbalance of wealth is mounting. The Canadian Centre for Policy Alternatives argues that several studies over 20 years show how the overall economy can grow because of higher minimum wages – and more jobs would be created. That challenges the conventional wisdom suggesting that jobs will be lost if minimum wages are increased.

However, most of these studies claim that overall productivity would increase because of higher wages. That argument is purely academic. Few studies have looked at food service or distribution sectors, which are low-margin and high-turnover environments.

With higher wages, the temptation only increases for enhanced automation and artificially intelligence. We’re already seeing more automation in restaurants.

Over the past few years, the Canadian labour market has undergone a quiet transformation as companies increasingly relinquish full-time employees. This is especially true in the food industry. Minimum wage hikes will only accelerate the process.

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 contemplated.

But allowing minimum wages to increase by 32 per cent in just 12 months is simply irresponsible.

Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).

© 2017 Distributed by Troy Media

About Mel Rothenburger (7559 Articles) is a forum about Kamloops and the world. It has more than one million views. Mel Rothenburger is the former Editor of The Daily News in Kamloops, B.C. (retiring in 2012), and past mayor of Kamloops (1999-2005). At he is the publisher, editor, news editor, city editor, reporter, webmaster, and just about anything else you can think of. He is grateful for the contributions of several local columnists. This blog doesn't require a subscription but gratefully accepts donations to help defray costs.

4 Comments on TIM’S TUSSLE – Just who’s the bully when it comes to minimum wage hikes?

  1. Jennie Stadnichuk // January 12, 2018 at 9:59 PM // Reply

    The writer speaks of young “under 24” workers as being temporary or short term food industry employees. Has he actually spoken with any of these young people? How many have searched for their “dream” job after graduating from College or University and many have not succeeded but are trying to repay student loans, pay rent, buy food and live! And what of the mythical “retirees”? Yes, a few may be working in the so called “fast food” industry, but many have retired without adequate (or any) pensions other than government OAS and CPP and must find work. Their other option may be working on a “contract” (if they have a professional designation and can find a contract) but for others, other than retail, restaurants may be their only option as they must work. Oh yes, there is Guaranteed Income Supplement (federal) and for many this is another form of “welfare” which they don’t find ethically palatable.
    I do agree the minimum wage increase percentage is too large and that the increase should have been done in several increments over two or two and a half (2 1/2) years or so. This would allow better business adjustment and planning.

  2. I dont have a full understanding of how exactly a franchise works, but why not put pressure on the franchiser to compensate the franchisee so they would be in a better position to pay the wage hike without having to lay people off or roll back benefits.

  3. ” . But minimum-wage staff in the food sector are either young students or retirees looking for some extra money. ”

    Wow. Is this guy ever out of touch. I see a lot of young mothers trying to eke out a living when I go out for food. Yes, there are some students, but single mothers are the bulk of the group that makes up servers. I sure haven’t seen too many ” retirees ” working in eateries, or fast food outlets.

  4. I agree with this op-piece and its conclusions. Much has already been written about a guaranteed basic income and it all makes sense.

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