Just who's the bully when it comes to minimum wage hikes?
Government generally has little or no understanding of franchising, how food distribution forces play out or even simply how small businesses operate - By Sylvain Charlebois
Dramatically increasing minimum wages in the food industry is irresponsible and even reckless.
On Jan. 1, Ontario's minimum wage increased by 22 per cent, to $14 an hour. It will go to $15 on Jan. 1, 2019. That's almost a 32 increase increase in 12 months. Other provinces, such as Alberta and B.C., will follow suit.
This obviously puts pressure on many businesses to recalibrate operating budgets. And the large food sector, where many workers earn the minimum wage, is already coping with major headwinds.
The minimum wage controversy got more exposure recently when letters from two Tim Hortons franchise owners, already mixed up in contractual clashes with parent company Restaurant Brands International, were leaked. These letters stated that employees would no longer have paid breaks and that some benefits would be withdrawn because of higher wages. Early reports inaccurately implied that the entire chain was taking part.
Even Ontario Premier Kathleen Wynne weighed in on the Tim Hortons situation, saying the owners where acting like bullies. Her criticism was unfair and displayed flawed understanding of the underlying economics.
Most small food-sector businesses are likely making similar changes out of necessity.
The Wynne government's policy on minimum wage is actually the bully.
Government generally has little or no understanding of franchising, how food distribution forces play out or even simply how small businesses operate.
A typical restaurant pays it employees anywhere from 25 to 35 per cent of total revenue. Therefore, a 32 per cent hike wage costs in 12 months is significant.
In addition, most businesses employing personnel at a minimum wage can't 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's needed to offset increased labour costs.
To remain profitable - and even to survive - businesses need to cut and adapt.
Higher wages would make economic sense if career development was part of the equation and those wages were part of an employee retention strategy. But minimum-wage staff in the food sector are either young students or retirees looking for some extra money. Last year, more than 42 per cent of food service workers were under the age of 24 and almost 24,000 were retired people.
For many of us, a food service job was the first opportunity to be part of the labour force. It taught us how to be part of larger organizations and to work as part of a team. That led to better experiential training, and increased and transferable skills. But a higher minimum wage will likely mean fewer such opportunities.
The push to a $15 wage is largely based on the desire to rebalance wealth for the bottom end of the income scale. It's a noble objective to serve the less fortunate and there's no doubt our economy's imbalance of wealth is mounting. The Canadian Centre for Policy Alternatives argues that several studies over 20 years show how the overall economy can grow because of higher minimum wages - and more jobs would be created. That challenges the conventional wisdom suggesting that jobs will be lost if minimum wages are increased.
However, most of these studies claim that overall productivity would increase because of higher wages. That 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 only increases for enhanced automation and artificially intelligence. We're already seeing more automation in restaurants.
Over the past few years, the Canadian labour market has undergone a quiet transformation as companies increasingly relinquish full-time employees. This is especially true in the food industry. Minimum wage hikes will only accelerate the process.
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 could be contemplated.
But allowing minimum wages to increase by 32 per cent in just 12 months is simply irresponsible.
Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).