On January 1, Ontario raised the minimum wage from $11.60 per hour to $14 ($12.10 for servers). The debt-ridden province, led by a scandal-plagued Liberal Party, is set to hike the minimum wage to $15 next year. Despite warnings from businesses, trade associations, and economists to slow down and take a deep breath, Premier Kathleen Wynne and the grits are plowing ahead at full speed. They’re down in the polls and nearing the spring election, so they are throwing everything at the wall to see what might stick and give the party a boost among the electorate.
On Wynne’s path of destruction, there are two victims: businesses and low-wage workers.
Businesses, both large and small, are already reacting to the increased minimum wage, and it isn’t pretty. Companies are slashing benefits, raising the tip pool, and eliminating paid breaks. Cashiers and servers are expecting something similar to their Seattle counterparts: lower take-home pay.
The premier’s response? Like her retort to families questioning the updated sex-education curriculum a couple of years ago, she called them all a bunch of capitalist bullies!
After 15 years of ruling Queen’s Park, perhaps this will be the straw that breaks the camel’s back, or a surreptitious plot to generate votes from youth, the impecunious, and unions.
Businesses Fight Rising Labor Costs
A few days into the new year, a Tim Hortons restaurant in Coburg made national headlines when it instituted some cost-cutting measures in response to rising labor costs. It removed paid breaks and reduced dental and health benefits by 50%.
The franchise owners were honest in their reasoning behind the clawbacks, according to a letter to employees that quickly went viral:
“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.”
A couple of days later, six other Tim Hortons stores across the province followed suit. Employees revealed to government-subsidized CBC that their paid breaks were being trashed. One worker conceded that she could lose up to $2,000 annually because of the internal changes.
And it isn’t just the home of the Double-Double that is responding to higher labor costs.
Citing an internal memo leaked by staff, Vice is reporting that Sunset Grill, a popular all-day breakfast place, will charge wait staff 5% for diners’ bills (before tax), up from 4%. Meanwhile, in Ottawa, Clocktower Brew Pub, Wimpy’s, and East Side Mario’s are hiking the tip pool by as much as 1.5%.
Even dishwashers are not immune to the new rules. Many of them are no longer receiving tip-outs since they’re being remunerated a higher minimum wage.
Wynne Not Happy with Market Response
When the Liberal government announced that it was raising the minimum wage, the experts warned about the consequences that would follow. They highlighted potential job cuts, higher prices, and measures that restaurants would implement.
Nevertheless, the grits went ahead anyway, promising that small business tax cuts would offset the $15 minimum wage. Professionals with the entrepreneurial spirit admitted that it wouldn’t be enough.
Entering the second week of the new year, Premier Wynne is trying to make an enemy out of the small business community, labeling some franchisees as “bullies” for taking unfair advantage of the laws.
She told reporters:
“I think that asking working people to sign a pledge agreeing to unpaid breaks or agreeing to less pay than the actual hours that they’re working. I mean, that’s not fair, but it’s also not decent.
To be blunt, I think it’s the act of a bully.”
Ontario Labor Minister Kevin Flynn echoed Wynne’s bully remarks, stating that he won’t stand for it anymore. He said at a press conference at Queen’s Park on Saturday:
“We knew when we unveiled Bill 148 that there’d be a reaction from some businesses. The minimum wage, I don’t believe ever in history, has been raised without the business community raising a fuss or concerns. For some businesses to take it out on their workers, however, is completely unacceptable. And it’s simply wrong. It’s the act of bullies that has no place in this province.”
Considering the province has had consecutive multi-billion-dollar budget deficits and a debt level totaling $300 billion, it is apparent that the grits think money grows on trees and that budgets balance themselves a la Prime Minister Justin Trudeau.
Economics Behind Minimum Wage
In June 2017, a group of Maine food servers fought to overturn a referendum that would lift their minimum wage from $3.75 to $12 over the next six years. Because they were concerned that their take-home pay would tumble and small businesses would close their doors, these brave restaurant workers defied unions, activists, and conventional leftist wisdom by combating a higher minimum wage.
It is difficult to start, maintain, and operate a restaurant because the profit margins are quite low. The average restaurant spends 32% of each dollar on food and beverage costs, 33% on wages, 6% on restaurant occupancy outlays, and the rest on variable expenses like energy. In the end, the average restaurant profit margin is somewhere between 3% and 5%.
Whenever a politician begins to shriek about living wages, it is doom and gloom for the foodservice industry, particularly for your typical mom-and-pop shops.
Outside of the restaurant business, corporations can absorb higher labor costs, which is why they often come out in support of ballooned minimum wages because they know their smaller competitors will be forced to shut down. However, places like Subway and Tim Hortons are owned by independent operators, many of which are already forking over large amounts of money to the parent company.
Plus, there are other factors to consider that affected workers, such as same-store sales on the decline, a reality impacting the bottom line of Tim Hortons.
Overall, the Fight for $15 initiative is doing a great disservice to low-wage workers at McDonald’s, Burger King, KFC, and Pizza Hut. One of the most significant trends in this industry is automation. Companies are in the beginning stages of automating their workforce with self-serve kiosks, digital table-top menus, robotic deliverers, and much more. This doesn’t include other elements like lower hours, limited shifts, a paucity of expansion, or zero hiring efforts.
The minimum wage is compulsory unemployment.
The only three benefactors of the minimum wage are corporations (see above), politicians, and unions.
Politicians are viewed as the crusaders of justice, fighting for the little guy. By intervening in the marketplace, public officials are seen by the proletariat as moral individuals with your best interests and the right intentions. You know what they say about good intentions.
Unions like the minimum wage because they benefit directly since it diminishes competition from unskilled, uneducated workers. A $15 hourly income, for example, would make it a greater expense for a business to hire minimum wage workers. As a result, non-union, unskilled workers often experience fewer job opportunities, reduced hours, and less pay.
Soon after California passed the $15 minimum wage, Los Angeles unions began to request the local government exempt them from the law. Why? Because unions would petition small businesses, informing them that if they unionize their workforce, then they would not have to pay $15 an hour, which means more members, dues, fees, and power.
Suffice to say, unions are not altruistic when they hit the streets shouting about fair wages.
The Canadian media, politicians, and unions are dominating the conversation in Ontario, portraying the private sector’s reaction as something out of Charles Dickens. They are conveying to the public that this is a vast, evil capitalist conspiracy to victimize, conquer, and bury the working-class. But the reality of the situation is that it is basic economics: higher wages lead to unemployment, and the price of labor is based on supply and demand. Even Keynesian-in-Chief Paul Krugman knows this! And so should Kathleen Wynne.
Do you support a $15 minimum wage? Give us a call on our LIVE Author chat line to ask us a question or tell us what you think!
Andrew has written extensively on economics, business, and political subjects for the last decade. He also writes about economics at Economic Collapse News and commodities at EarnForex.com. He is the author of "The War on Cash." You can learn more at AndrewMoran.net.
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