CANADA’S MINIMUM WAGE HIKES ARE LEADING TO CUTS IN WORKER BENEFITS
by Kevin Ryan
There’s a bit of an experiment underway this year in North America. It pits competing economic theories against each other.
• In America, tax cuts and deregulation are being put in place, supply-side policies that proponents contend are the best way to grow the economy and worker wages.
• In Canada, large minimum wage increases have gone into effect, a policy that liberals believe puts more money into the pockets of the lowest paid workers, people who spend a considerable portion of their income. This, they contend, will increase wages and spending, creating higher demand for goods and services.
So which side is ‘winning’? So far, it’s not even close. Half a year after the United States cut its corporate tax rate to 21%, already more than 4 million workers have received bonuses, wage increases (mostly to entry level workers), and benefit expansions. What’s more, some companies have also announced they will be passing along tax savings to their customers in the form of price decreases.
Meanwhile, across the border in Canada, the imposition of higher minimum wages in several of the country’s most populous provinces is having the opposite effect. In Ottawa, the minimum wage is up 23% since September. And many low-margin, labor intensive businesses are announcing corresponding cuts to worker benefits, larger gratuity clawbacks, shorter employee hours, increased workloads, elimination of free uniforms, end of paid breaks, and reductions to employee medical insurance contributions, not to mention price increases.
Tim Hortons, Canada’s largest fast food chain, for example, has announced many cuts to worker benefits. Even liberal Canadian media outlets are reporting on the pain it’s inflicting on workers. According to CBC, employees at Tim Hortons “are facing the loss of paid breaks, benefits, and perks by franchise owners citing Ontario's minimum wage increase. The cuts go beyond the iconic coffee chain, with minimum wage workers at other businesses being told they're also going to take a hit as a result of the hike.”
That’s because restaurants like Tim Hortons operate on razor-thin profit margins of around 4%. With wages accounting for a third of total expenses, Ontario's minimum-wage increase could have pushed some restaurants' costs up by 7%, completely eliminating their profitability. And unprofitable businesses eventually go out of business.
It illustrates what any apolitical economist will tell you: making your economy more business friendly will benefit businesses and their employees, while making it harder to stay profitable will hurt workers.