As of 2018, the minimum wage in Ontario increased from $11.60 to $14 per hour – a dramatic increase of 21 per cent in one night.
Some economists have said the increase is beneficial to the economy, and it will have a “trickle-up” effect. They believe by increasing the amount that an unskilled labourer earns, money will circulate back into the economy because people will be able to purchase more goods and services with expendable income. By that token, the economy will be able to regulate itself.
However, this idea does not account for several variables.
Variable results of the minimum wage hike
Who will be paying more out of pocket to afford employees a higher fixed minimum wage? Employers will have to pay more out of their company’s capital to ensure each employee is making $14 per hour. The wealthy will have to pay its employees more to abide by a government-mandated policy, which could limit how much they can spend on investments in new products and or services. When the wealthy cannot spend as much by legislative force, they end up tightening the amount of money that could be divided into other resources – which could also limit productivity within society itself.
This idea also does not account for the ways employers will now have to discriminate, ironically, with more scrutiny towards prospective employees than ever before. If the government dramatically increases the rate the government pays unskilled labourers, the employer will more likely hire a person with more skills. They will then discriminate against those the minimum wage hike claims to be helping, rendering the entire policy moot.
Other variables, such as increased prices of goods and services, will also follow after the companies fully adjust to the minimum wage hike. Layoffs, benefits cuts and an increase in poverty are just a few of the potential major downfalls of this particular wage hike. The Bank of Canada estimated that minimum wage increase could lead to cuts of 60,000 jobs by 2019.
Recently, a Tim Hortons franchise privately owned by the heirs of the Tim Hortons business, Ron Joyce Jr. and Jeri Lynn Horton-Joyce, decided to cut paid breaks as an alternative to laying off employees. They did this to offset the dramatic rise in labour costs.
This has caused a national debate as to who is at fault. Premier Kathleen Wynne has called the decisions “an act of a bully.” They were among several other Tim Hortons franchises, and other businesses, to do this.
Tim Hortons franchise owners Susan and Jason Holman, who operate a store in the Ajax-Whitby area, told employees not to vote for the Liberal Party in the upcoming Ontario election, due to the wage hike and its effects on the company. The only question left here is, who is the bigger bully? Kathleen Wynne or these Tim Hortons owners? There are several facts to consider in answering this.
The practice of any business looking to turn a profit is to weigh the marginal benefits against the marginal costs of any endeavor. When the government implements a minimum wage law and tells businesses they must abide by that law, businesses must weigh how valuable their resources (employees) are in accordance with current productivity. They must then compare it with the costs of the amount they are willing to pay out to keep their resources and continue their current line of productivity. If the cost of their resources outweighs their current predictions of long-term beneficial productivity, the business will have to make adjustments to keep surplus in their capital. These adjustments include layoffs, benefit-cuts and increase in automation.
Layoffs, benefits cuts and an increase in poverty are just a few of the potential major downfalls of this particular wage hike.
For Tim Hortons, the cost for an average franchise per year will now increase to $243,889.10. This also includes an increase in the annual cost for an average Tim Hortons employee, which will now be $6,968.26 per year. When taking these numbers into consideration, it is reasonable that Tim Horton’s will have to make some adjustments to offset these costs in a way that will not affect employment but will keep their company in good shape. The decision to cut paid breaks instead of laying off employees is arguably the best decision Tim Hortons could make in this situation because they are able to keep their employees while finding a way to offset the costs in a manner that does not affect their employees as negatively as mass layoffs.
Kathleen Wynne views the minimum wage hike from a more egalitarian perspective and perhaps wants the best for lower-middle income class families and communities. However, as Premier, her responsibilities must include ensuring the policies she implements into legislation are not determined by emotion but are founded on empirical evidence. She should do what is best for each individual within the province she serves, rather than for one collective group within a specific demographic. The minimum wage hike was designed for the lower-middle class but will only create more income inequality. It forgets that it is the rich that has to pay for it.
So, nobody here is the bigger bully. Tim Hortons owners have made a reasonably sound business decision in response to government intervention of the minimum wage. Meanwhile, Kathleen Wynne’s entire prerogative regarding the minimum wage increase was to make sure employees were able to make a fixed wage higher than before to decrease disparity of income inequality. If they are guilty of anything, I’d say Kathleen Wynne is guilty for being naive and Tim Hortons is guilty for being a business.
By Justin Shalitis
Please note that opinions expressed are the author’s own. They do not necessarily reflect the views and values of The Blank Page.