Young workers will bear brunt of increased business costs
On Oct. 1, the minimum wage in Newfoundland and Labrador increased to $11/hour. This is the second increase in a year.
Yet, many lament it is the lowest in the country and are pushing for $15/hour without any economic justification for it.
Small- and medium-sized business owners in the province are doing everything they can to keep their businesses afloat and people employed. To deal with the increase in minimum wage (and any other cost increases for that matter), business owners will increase prices or reduce costs accordingly.
For owners of convenience stores or gas stations – where many minimum wage jobs can be found – the government dictates how much profit they make. For example, profit from beer sold in bottles is $1.65 per dozen, while the consumer pays about $25. A gas station owner is allowed nearly nine cents per litre profit on gasoline sales, though drivers are paying in excess of 110 cents per litre.
From their perspective, it is inherently unfair for the government to increase their business costs, but restrict their ability to generate revenue.
Another concern expressed by those who own licenced restaurants and convenience stores is minors are unable to sell or serve alcohol. This means an employee over the age of 19 has to be present at all times. As the costs of operating a business increase, restaurant and convenience store owners are adjusting by hiring fewer youth under the age of 19. If you travelled across the province this summer, you may have seen job ads posted by some businesses with “Over 19 only please.” This is the reason why.
Any business owners unable to increase prices will have to absorb the costs somehow. Unfortunately, it will be youth and inexperienced workers who will feel the brunt.
A third of small business owners would reduce hiring of youth or inexperienced workers if the minimum wage was $15/hour today. Recent CFIB research shows that if the minimum wage was to rise to $15/ hour, at least 2,700 youth in the province would not be able to find work. This is disheartening considering a youth unemployment rate in Newfoundland and Labrador that ranges between 15 and 20 per cent in any given month. If youth are to be encouraged to stay in Newfoundland and Labrador, they have to be gainfully employed.
Ideally, the government will use the tax system to put more money in the pockets of lowincome workers rather than relying on increases to the minimum wage. However, the provincial government has been looking at indexing minimum wage to some sort of economic indicator; it has yet to make a decision.
Many small business owners are concerned about indexing minimum wage, and to ease the burden, there should be offsetting measures. Specifically, CFIB recommends the following if indexation occurs:
- ensure the workers’ compensation assessment rate is reduced by the same percentage value as the economic indicator chosen;
- consider automatic increases for government-mandated profit margins equal to the percentage value of the economic indicator chosen; and
- review the possibility of an enforcement mechanism allowing minors to sell and serve alcohol in licenced establishments.
Small businesses are playing their role in sustaining the local economy. However, as long as politics continue to trump economics, that will be harder and harder to do.