Who is bullying who over the minimum wage?

Government doesn’t grasp economics of food industry, says Sylvain Charlebois.

On Jan. 1, the minimum wage in Ontario increased by 22 per cent, to $14 an hour. It will go to $15 on Jan. 1, 2019. That is almost a 32 per cent increase in 12 months. This obviously puts pressure on many businesses to recalibrate operating budgets. Other provinces such as Alberta and British Columbia 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 Hortons franchise owners, already mixed into contractual clashes with parent company Restaurant Brands International, were leaked. These letters stated employees would no longer have paid breaks and some benefits would be withdrawn because of higher wages.

Even Premier Kathleen Wynne weighed in by stating in an interview that the owners were acting like bullies. In doing so, she simultaneously offered a sad display of flawed economics.

The reality is, Tim Hortons was unfairly targeted by the premier. 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 play out, or even simply how small businesses operate.

A typical restaurant pays its employees 25 to 35 per cent of total revenue. 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 three per cent over a period of a few years. That is far short of what is needed to offset increases in 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 embedded into an employee retention strategy. But most earning the minimum wage in the food sector are either young students or retirees looking to make some extra money. Last year, more than 42 per cent of workers in the food service industry 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 organizations and to work as part of a team. 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. There is no doubt the evidence of a wealth imbalance in our economy is mounting.

The Canadian Centre for Policy Alternatives states that several studies spanning more than 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 that suggests 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, which are low-margin and high-turnover environments.

With higher wages, the temptation for enhanced automation and the use of artificial intelligence only increases with time.

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

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 are two options. But if we are to support a higher minimum wage, increasing it by 32 per cent in 12 months is simply irresponsible, and perhaps even reckless.