Wynne’s class warfare just may work
It would have required a degree of cynicism even we can’t muster to have predicted that one of the first big political stories of 2018 would be the premier of Ontario, backed by labourunion allies, waging a shaming campaign against the small- business owners who sell coffee and doughnuts at one of Canada’s most iconic brands, Tim Hortons.
On Jan .1, new labour regulations took effect in Ontario. The most remarked-upon is a significant bump, effective immediately, in the provincial minimum wage, from $11.60 to $14. A further bump, of another dollar, is planned for the first day of 2019, bringing the total to the somehow talismanic number $ 15, which Liberals believe is the exact perfect minimum wage for every low- skill worker whether they’re toiling in downtown Toronto or Sioux Lookout.
The evidence in support of the minimum wage as a means of elevating the quality of life for low- income Canadians is thin, at best, and at the very least it’s clear that higher wage floors should be brought in gradually, to give businesses ( and the consumers who support them) time to adjust.
In any case, there are other policies that have far more credibility in helping low- income workers get ahead. But there’s an election in Ontario this year, and the Liberals are behind in the polls. So, there is no time to waste on evidencebased policies with more subtlety than this sledgehammer to business owners. Especially for politicians trying to save their careers by spending someone else’s money.
And that’s literally what a boost to the minimum wage is. Even the policy’s most ardent supporters don’t deny that it results in a wealth transfer — indeed, that’s the point. The only question is who ends up covering the cost.
And that brings us to Tim Hortons. Most Tim Hortons outlets are franchises: they are owned and operated by individuals who agreed to adhere to a series of company- wide standards enforced by head office. The standards, in the case of Tim Hortons, include branding, logos, decor, menu and, crucially, price. Headquarters periodically raises the price of its menu items, say, to react to commodity- driven spikes (if the market rate for coffee beans goes up, you’ll pay for it) or to keep up with inflation. But Tim Hortons storeowners have no control over that.
Yet it’ s the franchise owners in Ontario who are now covering the increased labour costs triggered by the minimum wage. And not just those. As Restaurants Canada president and CEO Shanna Munro noted in our Financial Post comment pages this week, the minimum wage hikes make up just a portion of the new costs triggered by a raft of new labour rules that took effect along with the higher minimum wage. While the higher wages account for 58 per cent of the costs of the Ontario Liberals’ Bill 148, Restaurants Canada estimates that another 42 per cent are expenses created by all the other new workplace regulations.
When a business is faced with a sudden increase in operating costs, owners normally must make it up by losing profits, raising prices or finding cost savings elsewhere( or some combination of those). But franchise owners like those at Tim Hortons, or other chains, really only have 1.5 of those options, since they can’t raise prices and must pay company- dictated costs for their inputs. That means cutting into profits, which for owner- operators typically means cutting their own pay or trying to find other ways to control the cost of labour itself.
Since franchise owners only get into business in the first place to make a profit, adjusting those labour costs is exactly what some Tim Hortons operators have opted to try. They’ve dropped some perks that were nice for their employees but not legally required, like paid breaks and free food. Some are now requiring their employees to chip in for insurance benefits that were once fully covered ( which is a fairly common employment requirement). The optics of business owners denying their workers a maple glaze aren’t cheery, but the reaction is as much basic economics as supply and demand. A minimum wage hike doesn’ t come free; someone picks up the tab. Did anyone really expect employers to simply eat the expense — even if it jeopardizes the health of their businesses?
To demagogue poli t - icians, the answer is obviously yes. Kathleen Wynne has repeatedly denounced the changes as if these business owners are enemies, even referring to their decisions as “bullying.” A series of protests have been staged outside Tim franchises, composed of labour activists who have traditionally been close to the Ontario Liberal party. Labour activists are the ones who pushed the campaign for a $ 15 minimum hourly wage — since their contracts are indexed to go up with any legislated rise in the wage floor — and they’d surely love to lure Tim Hortons workers into joining their ranks.
The entire affair is absurd. Many reputable economists warned the Liberals that the minimum wage bump was too much, too fast, and recommended a longer phase- in period. Business owners implored her to listen. The premier’s pollsters, apparently missing the memo from federal Finance Minister Bill Morneau that cheap and ugly class- warfare politics are risky business, apparently convinced her there was no time for such moderation with an election just months away. So it’ s full speed ahead, then, and damn the consequences.
And now that business owners, especially those constrained by franchise obligations, are reacting predictably, the premier is campaigning at their expense, alongside jeering unions who well recognize an opportunity for making more money for themselves, even as they accuse the families who run coffee shops of being greedy. It’s outrageous, transparent and all too predictable. But lucky for Wynne, it is Ontario. It’s crazy enough that it might just work.