Small businesses coping with wage hike

Chris Lowes had some apprehension in the weeks and months leading up to Jan. 1, when pay cheques for the majority of his staff were poised to increase by 21 per cent.

“Yeah, there was some fear,” he said.

But after making it through a few paydays since the minimum wage was increased to $14 an hour for 75 per cent of his 14 staff members, Lowes is no longer as worried as he once was.

“I think it’s a good thing,” said Lowes, who owns the Mahtay Cafe on St. Paul Street in St. Catharines.

The increase, he added, “is well overdue.”

Service industry businesses like cafes have been hardest hit by the minimum wage hike, poised to increase to $15 an hour at the start of 2019.

And Niagara has plenty of service-related industries, pointed out Paul Smetanin from the Canadian Centre for Economic Analysis.

His Toronto-based independent research firm was contracted last summer by the Ontario Chamber of Commerce to gauge the impact of the then-proposed minimum wage increase over the next two years.

“When you look at the costs in Ontario on average over the next two years, you’re looking at about $11.5 billion potential cost that somehow businesses need to mitigate,” Smetanin said, in an interview.

“To put that cost into perspective, it’s equal to all the corporate taxes that are paid to the province. It’s a significant shock to the system,” he said, while describing the provincial legislation – Bill 148 – as “the largest socio-economic experiment in over 40 years.”

He said accommodation and food service industries “are disproportionately hit hard” by the legislation, and there are many industries of that type within Niagara.

As a result, he expects to see prices for goods and services increase by an average of about 1.6 per cent.

At his St. Catharines cafe, Lowes has taken several steps to deal with the increased costs.

“When you put the wage increase, the increased holidays and all that, it’s almost a 30 per cent increase,” he said.

Although the cafe absorbed as much of the increase as possible, Lowes also increased his prices by about 10 per cent.

The extra 20 cents for a coffee was initially too much for some customers. It led to a bit of dip in sales, but “it seems like we’re recovering now,” he added, gesturing to the full tables in the busy cafe.

“Customers have been fairly sympathetic.”

While some business organizations were urging the government to gradually ramp up the minimum wage, Lowes said “it’s just kicking the problem down the corner.”

“Our staff deserve more money. People deserve more money in their pockets, especially those living on minimum wage.”

As suppliers too deal with the increase by also increasing their prices, Lowes suspects the full impact of the wage increase is still to be felt.

But he’s preparing for those cost increases, too.

“We look for some efficiencies and we’re trying some other things,” he said – adding further price increases might be too much for customers.

The wage increase didn’t have as large an impact on Black Sheep Lounge owner Lucas Spinosa.

Although employees at his cafe on Niagara Street in Welland did get a raise on Jan. 1, they were already earning above the previous rate.

Nevertheless, he said the cafe was prepared for the increase.

“I find, if people value what you do and you need to implement a price increase they’ll typically support that, but the best thing to do is to plan ahead for something like this.”

Spinosa said the cafe also had time to generate a loyal customer base when the increase was implemented – a good thing when considering additional cost increases that he anticipates will be passed on by suppliers.

“If it was two years ago when we first opened, we wouldn’t make it. We were lucky that we were able to at least get over that two-year hump,” he said.

“Obviously, any increase in costs makes it difficult when you’re a small business owner, no longer how long you’ve been doing it. … But I think this would have been a much bigger problem if this were earlier on in the game for us.”

Spinosa suspects most of his customers wouldn’t object if he’s forced to increase prices to compensate for the added costs, adding he has yet to do so.

“We’ve had customers always say you should be raising (prices), and we still haven’t. It’s nice to know that if it ever gets to that point, your customers aren’t going to abandon you.”

Although Spinosa said the increased labour costs wouldn’t stop him from hiring additional staff when needed, he said he’d likely be more selective of the new employees he hires.

“It would make me have more of a higher standard for staff we would bring in,” he said.

When “every hour costs you three bucks more than it used to,” he said employers might be less willing to spend as much time training those workers.

Smetanin’s study of the provincial legislation also showed that jobs will continue to grow in the next few years, despite the new legislation.

However, he said the job growth will be 2.7 per cent less than what it could have been as a result of the legislation.

“That’s equivalent to about 5,900 jobs,” Smetanin said.