There’s no free lunch at Timmies
Time and again politicians stick us with policies that create more harm than good. And now Ontario’s harmful policy to drive up minimum wages has led to a dustup over between Premier Kathleen Wynne and members of Tim Hortons’ founding family, Ron Joyce Jr. and his wife, Jeri- Lynn HortonJoyce, who own two stores in Cobourg, Ont.
Wynne says the Joyce family is a “bully” for adjusting to her forced minimumwage increase — from $11.60 to $14 beginning this month — by cutting back staff benefits (including coffee breaks, i ronically enough). Tim Hortons’ corporate parent company, Restaurant Brands International, fearing a customer backlash, cowered, and denounced the benefit rollbacks as the “reckless” actions of “a few restaurant owners … (who) do not reflect the value of our brand.”
And here I thought Tim Hortons’ brand was about selling good coffee and doughnuts at low prices to the broad public. Maybe the family that founded the company made the mistake of thinking that, too. Sure, it’s easy to call franchisees mean names for trying to cut labour costs to counter the impact of higher minimum wages. But the alternative is that other franchisees have instead started raising prices, as reported by the CBC. Supposedly we’re to think that’s the nicer response, yet no one points out that this also hurts consumers, many of whom are also poor or working poor. From what I see in various downtown Tim Hortons outlets, some customers are homeless. Is it fair that they should lose more of their money? There’s no free Tim Hortons lunch here.
Ontario’s 21-per-cent minimum-wage hike — set to rise another seven per cent to $15 next year — is simply “yuge” in Trump terms. The 2017 minimum wage of $11.60 an hour translates into a yearly salary of $24,000 (assuming vacation time and no other benefits). That’s an income many senior citizens would love to have. By 2019, the same employee will be receiving roughly $ 31,000 annually.
Now consider that Ontario’s median employee earnings for someone who slogged for years to gain an apprenticeship in a skilled trade are $37,000 (including non-pension benefits), which is about $18 per hour. That’s not drastically higher than the 2019 minimum wage before benefits. So, if someone with little education is getting $ 15 per hour plus some benefits, why would workers bother putting in the time and effort to get a better- skilled apprenticeship? Meanwhile, the workers who will be increasingly shut out of minimum- wage jobs will be those who bring the lowest skill value, including youths and immigrants.
Not everyone believes that, of course. In 2015, defending her hikes to Alberta’s minimum wage, Premier Rachel Notley claimed that “copious studies” show that higher minimum wages increase employment. That argument — based on the idea that putting money in workers’ hands, rather than investors’, raises aggregate demand for more workers — is actually based primarily on one study that was later refuted with better data. It’s also intuitively nonsensical; otherwise Notley could have quadrupled minimum wages to $ 60 to put unemployed Albertans’ back to work after the oil-price crash.
Economists generally agree that minimum wages cause job losses, even if the impact may not be significant in some cases, but most studies underestimate the losses by looking at shortterm rather than long- term effects. Research suggests job losses are heaviest in slow- growing economies or when minimum wages are already high relative to median wages. ( A new study by the Bank of Canada suggests the job losses in Ontario caused by the wage hikes will range from 30,000 to 130,000, but those are incorrectly based on marginal changes, rather than large changes in the minimum wage.)
But whatever the studies say, the fact is someone has to pay for higher labour costs. Employers really only have three options: lower profits, raise prices or reduce wages and benefits.
Obviously, those on the left want the first option, since they see business owners as bottomless money pits who should absorb the wage hike themselves. But that’s not how the world works. In- vestors — including worker pension funds — can choose to invest in Ontario or somewhere else. If an Ontario business is earning poor profits, owners will shift their money to greener pastures, and over time, Ontario workers will get relatively lower pay and benefits. Any owner who tries staying put with weak profits wouldn’t be able to raise capital to replace or upgrade equipment or fund expansion or innovations to maintain market share.
Then there’s the second option: raising prices. Not only does this hurt workers by immediately reducing the purchasing power of everyone’s money, it makes it harder for local manufacturers and producers (like farmers) to compete with imports. Ultimately both owners and workers bear the cost as businesses lose market share.
That leaves the third option: paying workers less. Minimum wage rules don’t cover benefits, so employers can react to higher hourly wages by cutting commissions, health plans or retirement benefits. Or they can introduce automation that will save on labour costs. The way technology is going, it might not be long before Ontarians are ordering their burgers with iPhones, delivered by robots.
So ultimately, who pays most for minimum wage hikes? Workers of all incomes do. The public economic literature is full of studies that show that whether it’s employer- or employee-paid taxes on payroll — and mandated minimum wages are no different, even if some workers gain while others lose — the result is always lower wages through either reductions in salaries or benefits or both.
We should welcome policies that actually help the working poor get more money. There are ways to do that, like increasing education, and eliminating excessive marginal tax rates and benefit clawbacks, some of which exceed 100 per cent. But raising wage f l oors doesn’t help. It only makes things worse for workers.