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By Ted Mallett
Published in The Globe and Mail January 5, 2018
Now that the clock has flipped to 2018, the great Canadian social experiment of minimum wages has begun in earnest. Ontario is out of the gate with a new hourly wage floor of $14 – up 21 per cent from a year ago – and on its way to $15 next January. It has not taken long for the gasps to emerge from people who are not experiencing the nirvana they were promised.
What spurred this is news that a not-just-any Tim Hortons franchisee is cutting back employee benefits to accommodate the new wage rules. Not only has Ontario Premier Kathleen Wynne intimated that this kind of outcome is all news to her, she has also called it bullying on the part of employers – a double-double of disingenuousness, so to speak. The fact that the owners are family to original franchisee Ron Joyce grabs attention, but is a red herring because thousands of other business owners – many of those who barely clear livable wages themselves – are having to confront exactly the same challenges in their workplaces.
Those piling on the Joyce family are focusing on assumptions of wealth, but income is the real metric. The financials of this franchisee are not known, but it can't be atypical of the hospitality sector in general, where about one-third of businesses are losing money in any given year. Yes, wages tend to be lower than average in this industry, but it is because margins are low for owners as well.
In the case of this particular Tim Hortons franchise, despite being slammed by the Premier, the impacts actually look quite muted. There are apparently no layoffs, and there is nothing to suggest the franchise owners are better off after cutting staff benefits. Equally, their employees – as a group – are probably just as well off as before. It is just that the value of some of their benefits were traded for wages.
It's also important to remember that we are only a couple of days into the year. Since there has been no precedent for a wage shift this large, it is understandable that further tweaks and adjustments will be made depending on the reaction of customers to price changes and employers' abilities to hire and retain their best employees.
One cannot blame the public for failing to understand that raising the cost of something does not raise its value – the promise maker was the Ontario government, which in seeking to make political hay for the 2018 election, closed its ears and eyes to any rational discussion on what the potential impacts would be. Policy makers were told emphatically by many groups that some business owners would struggle to work such a large jump in the minimum wage into their operating structures and that the range of coping strategies would include staff layoffs, hours reductions, benefits rollbacks and price increases.
Until now, discussion of the impacts has been confined to the abstract space, with academics, organizations like the province's Financial Accountability Officer and, more recently, the Bank of Canada weighing in. Each comes up with slightly different forecasts, but all recognize that not all low-income earners will benefit from higher minimum wages. That we now see some of the negative repercussions show up among real people is not the fault of employers, but of those who set up people's unfulfillable expectations. Suggesting that raising minimum wages would help all employees was wrong and dishonest.
Our macroeconomic understanding will also take some time to develop. Employment data from the Labour Force Survey won't be helpful early on because we will not be able to gauge whether monthly employment and earnings variations are a result of effects of the minimum wages or because of other economic influences. It may take years for statistics on low income and poverty to emerge clearly enough to draw our discussions away from the world of anecdotes and political rhetoric.
Perhaps it's too much to expect the Ontario government to start listening at this point, but it would be helpful to see other provincial governments retain open minds.
Ted Mallett is chief economist at the Canadian Federation of Independent Business.
This story was originally published in The Globe and Mail.