Consequences of Raising the Minimum Wage

minimum-wageAs of Jan. 1, Ontario’s minimum wage is now $14 an hour, up from $11.60. The CBC has two articles on the increase: Tim Hortons heirs cut paid breaks and worker benefits after minimum wage hike, employees say, and Minimum wage hikes could cost Canada’s economy 60,000 jobs by 2019. I’m going to comment on both.

Employees at an Ontario Tim Hortons owned by the children of the chain’s founders say they have been told to sign a document acknowledging they are losing paid breaks, paid benefits, and other incentives as a result of the province’s minimum wage hike. “I feel that we are getting the raw end of the stick,” said one front line employee who asked to remain anonymous out of fear of losing their job.

And yet, as Tim Hortons announces lower profits, higher prices, is it surprising that franchise owners would seek to recoup a further loss of profits?

“Breaks will no longer be paid. A 9 hour shift will be paid for 8 hours and 20 minutes. These changes are due to the increase of wages to $14.00 minimum wage on January 1, 2018, then $15.00 per hour on January 1, 2019, as well as the lack of assistance and financial help from our Head Office and from the Government.”

Makes sense. If the government forces the franchise owner to pay more, but are not forcing them to give paid breaks and benefits, the franchise owner can remain profitable by cancelling those benefits. In the long term, once Ontario has adjusted to the higher minimum wage, perhaps they will reinstate some or all of these benefits to retain their people.

“Organizations are finding ways to transition to a higher minimum wage. We are encouraging them to work together to share best practices and innovations,” said a spokesperson for Ontario’s Ministry of Labour in an email to CBC News.

Sounds sensible.

Besides losing paid breaks, the document states workers with more than five years of service will have to pay 50 per cent of the cost of benefits, and employees with between six months and five years service will have to pay 75 per cent. An employee with more than five years service told CBC News that prior to this, their benefits were covered 100 per cent by the company.

And since the franchise owner is not required to pay benefits at all, this is hardly an outrage.

“[100% coverage] was a big benefit for the people who work at Tim Hortons, because it’s not a great paying job,” said an employee, who said they were making $13 an hour prior to the minimum wage hike. “The benefits are what kept me there. Now you are going to make me pay that. I don’t understand why you can take it away. Sounds like you are penalizing your staff because the government is trying to help your staff.”

Why should the franchise owner have to eat the increased cost? As usual, when governments interfere in the market, there are consequences. It will take time for the market to adjust.

Another employee said that with unpaid breaks and having to pay 50 per cent of the cost of benefits, their biweekly paycheque will actually be $51 dollars lower than it was before the minimum wage hike.

They would have been better off (at least in the short term) if the government had not interfered. The raise in the minimum wage will help people who’s employers weren’t giving them anything extra, assuming that they don’t lose their jobs, but that’s no doubt cold comfort to these Tim Horton’s employees.

James Pickersgill, a Cobourg resident, said some people are pointing to this situation as a reason why the minimum wage should not have gone up, because it forces small businesses into difficult decisions. But a far greater number of people are outraged, he said. “People are talking about boycotting their stores, and saying ‘I’ll go to another [Tim Hortons], but I won’t go to that one.'”

That is their right. I wonder if they would be as outraged if the government had come along and legislated a huge pay cut for them that matched the revenue loss the franchise owners would have felt if they hadn’t cut benefits?

But at least the poorest workers who work for companies that pay the minimum and give no benefits that aren’t mandatory will be helped, you say? Well, not all of them:

Minimum wage hikes across Canada this year could cost about 60,000 jobs by 2019, despite the benefits they would bring, the Bank of Canada says in a new report.

This is another part of the adjustment to the changes. When the government intervenes, businesses must either adapt or become unprofitable and fail. The only employees who don’t have to worry about their employers profitability work for the government.

By the end of 2018, Alberta, Quebec and Prince Edward Island are also expected to hike their minimum wages. Economists and business leaders have squabbled over the issue, with some of the former arguing higher wages boost the economy and help fight income inequality. Those on the other side, meanwhile, say the costs are too high and will come with a heavy toll on the job market.

Economists are generally idiots. 60000 jobs does seem like a pretty heavy toll.

Farmer Kevin Howe of Howe Family Farms in Aylmer, Ont., a small business that has been in operation for five generations, said he’s already reducing the amount of crops he plans to plant this year, and fears he won’t need as many workers because consumers won’t be willing to pay the higher prices he’ll have to charge to cover wage increases.

This farmer is probably smarter than any of those academic economists, at least when it comes to his specific market.

According to the report, the official inflation rate is expected to get a boost of about 0.1 percentage points because of the hikes this year alone. And growth in the overall economy is expected to be held back by about the same amount.

If the impact only inflation really is only 0.1%, this is pretty good news.

Paradoxically, while minimum wage workers stand to benefit in the form of higher salaries, they could potentially also be hurt as the job market in that sector may dry up, making it harder to get a job if they lose theirs.

The change cuts both ways. You can’t expect small business owners (and yes, franchise owners are small business people, and are typically not rich) to absorb losses that will make them unprofitable. If they can’t pass the costs on to their customers–and often, they can’t–they will claw back benefits, hire fewer employees, or automate. In the long term, markets will sort themselves out. In the short term, there will be pain.

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About jimbelton

I'm a software developer, and a writer of both fiction and non-fiction, and I blog about movies, books, and philosophy. My interest in religious philosophy and the search for the truth inspires much of my writing.
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3 Responses to Consequences of Raising the Minimum Wage

  1. lies lies lies says:

    all lies jim, you’re a f**king idiot who believes the multi-millionaire owners of tim hortons are somehow suffering.

    • jimbelton says:

      If you think that most franchise owners are multi-millionaires, you are delusional. If you think that paying higher wages doesn’t increase costs, you are an idiot. I didn’t say they were suffering, only that they were changing their behavior because of those costs.

  2. jimbelton says:

    A general comment on comments: If you want to criticize, do it with facts. If you include ad hominem attacks, your comment may be deleted. The comment above is a good example of the kind of comment I’d normally delete.

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