It has indeed been a terrible, horrible, no good, very bad month for left-leaning activists in both the U.S. and Canada. On January 1, the province of Ontario raised the minimum wage to $14 per hour, and 18 American jurisdictions increased their own rates to as high as $13. Prosperity for all? Not quite.
Despite initial jubilation and promises of zero unintended consequences by politicians, the market is reacting swiftly with job cuts, price hikes, and benefit clawbacks. This, of course, has prompted upset unions and angry liberal protesters to initiate demonstrations, accusing businesses of being nothing more than evil capitalists – monocle and all.
When the Ontario government first voted in 2017 to boost the minimum wage to $15 in 2019, economists, trade associations, and anyone who enrolled in an Econ 101 course warned of the dangers of the political maneuver. Since basic economics dictates that the price of labor is based on supply and demand and that higher wages lead to unemployment, many individuals with common sense were merely baffled.
The left dismissed the concerns as paranoia and greed. But reality has set in, and many are desperate to already turn the calendar page on January.
Red Robin Eliminates Busboys
Ahead of higher minimum wages across the country, Red Robin, the popular national restaurant chain, announced it would be eliminating busboys at nearly 600 restaurants. “To address labor increases we’ve seen,” CFO Guy Constant stated that current staff members would take on additional duties to save about $8 million this year.
Constant believes the move will negatively affect customer service.
This move may not be too surprising, considering that dining establishments like Red Robin rely on razor-thin profit margins.
Last year, Red Robin got rid of expediters, employees who take food from cooks and place the meals on plates for servers. The measure saved the business $10 million last year.
Commenting on the announcement, Michael Saltsman, director of the Employment Policies Institute (EPI), told FOX Business:
“I read that as minimum wage. Somebody like Red Robin, which has a lot of exposure in western states [where the minimum wage is rising faster] … this is sort of a burger and beer chain. If they can’t pass those increases off in higher prices … they have to find a way to do more with less.”
Is Automation Coming to Jack in the Box?
With government-mandated higher labor costs, fast-food chains have been replacing human workers with automation. At McDonald’s, you’re beginning to see a growing number of self-serve kiosks. Wendy’s stated in 2016 that it was adding more of these machines at 1,000 stores. Panera Bread is complementing its cashiers with self-ordering stations.
You can add Jack in the Box to the increasing list of brands flirting with a robot takeover.
Speaking at the ICR Conference in Orlando earlier this month, CEO Leonard Commasaid that the company may swap cashiers for robots because “it makes sense.” He told the audience that the chain tested the technology before, but the problems were two-fold: there was improved efficiency and a greater average check, but installation costs were immense.
However, since governments, particularly on the West Coast, are raising the minimum wage, Comma said that Jack in the Box is now reconsidering the use of kiosks and other automated technology.
Automation has been ramping up in recent years, but the Fight for 15 crowd has aided its prevalence.
Ontario Businesses Fighting Back
Tim Hortons, Sunset Grill, and many other well-known businesses in the deeply indebted province are making national and international headlines for their responses to the $14 minimum wage. Tim Hortons has eliminated paid breaks, slashed employee benefits, and prohibited cashier tips. In addition to the all-day breakfast chain, a plethora of restaurants are increasing the tip pool, lowering the pay for servers.
But your average mom-and-pop small business is also being impacted.
Stratford’s Covert Community Closet, Ottawa’s ByWard Market, Fergus’s Fraberts Fresh Food, and London’s Orr Cleaners are some of the many private enterprises taking the expected actions: cutting benefits, decreasing hours, removing perks, or reducing seasonal and part-time staffing levels.
Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), noted that employers are going as far as no longer hiring inexperienced workers, telling The Globe and Mail:
“Several have said they will have to reduce their total head count or, at minimum, hold off replacing vacant positions. Some have said they'll opt for more experienced employees as the higher minimum wage won't allow them to take a chance on a trainee or inexperienced worker.”
Premier Kathleen Wynne called businesses like Tim Hortons “bullies.” But are employers with a fraction of the corporation’s workplace size also a bunch of bullies?
Bad News Won’t Stop Bad Policy
Announcing that your government is increasing the minimum wage by as much as 21% in a single year may garner re-election votes, but it defies economic logic, and politicians really do understand this.
Governor Jerry Brown (D-CA) revealed as much when he told union representatives in April 2016:
“So, economically, minimum wages may not make sense. But morally and socially and politically, they make every sense, because it binds the community together and makes sure parents can take care of their kids in a much more satisfactory way.”
To cling to power, governments will enact multiple measures they say will assist the most vulnerable, even though the laws will hurt the very people they say they want to help.The words of President Ronald Reagan certainly ring true: “The nine most terrifying words in the English language are: I'm from the government and I'm here to help.”
Ask Seattle low-wage workers who are losing $2,000 a year if they’ve been helped by the government. Ask Ontario minimum wage workers who lost benefits if they feel richer. Ask Red Robin Boys busboys who are no longer employed if they feel prosperous. The government should cease meddling in the labor market, and allow businesses operate and workers earn a living.
Walmart rocked markets this month when it announced it was voluntarily enhancing the minimum wage for its workers to $11 minimum wage amid the corporate tax cut. This is how markets and entrepreneurship work: when the government gives back more of the private sector’s money, it will reinvest it in jobs, expansion, benefits, or training. You can’t mandate wealth.
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