The time for theorizing about an increased minimum wage is over. The time to adapt to it has arrived. Of course prices had to go up immediately — but if someone tells you they know how increasing the minimum wage will affect Ontario long-term, they’re bluffing.
Since the planned increase was announced last year, media coverage has largely focused on how a higher minimum wage will affect employers. (A rare exception is Amanda Ghazale Aziz’s Chatelaine profile of four women who work for minimum wage.)
The majority of stories have relied on forecasts by naysayers who prophesy that paying people more will lead to job losses. In September, just about every publication reported TD Bank’s prediction that the wage hike would cost 90,000 new jobs. Last week, a report by the Bank of Canada, predicting a loss of 60,000 jobs, was dutifully covered by all major outlets. The Toronto Star bothered to sift through the details of the report and explained that the figure doesn’t represent the number of layoffs predicted, but of jobs left un-created (though not without running the scary number in a front page headline).
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Whatever your economic point of view, if you cherry-pick evidence, you’ll find what you need to support it. Even trying to be scientific about it, looking for external examples, doesn’t provide clear answers.
In 2015, Seattle began rapidly raising its minimum wage, from US$9.47 to $11. It hit $13 in 2016, and the city plans to raise it again, to $15, in the future. Duelling studies — one from the University of California, the other from the University of Washington — declared the change wonderful and terrible, respectively. The first found that the raise had had no discernible effect on employment, while the second found a loss of earnings due to fewer workable hours. Are both right? Are both wrong? What, if anything, can Ontario learn from Seattle?
“The economists have neutralized each other,” says Anil Verma, a professor at U of T’s Rotman School of Management, and a director of its Centre for Industrial Relations and Human Resources. “The kind of increase you’ve just seen on January 1 is a rare event. No government in the past has been so bold. None of those cities in the U.S. have ever had a 22 per cent increase. The right answer is that no one knows exactly what the impact will be.”
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The biggest mistake I keep seeing in restaurant reporting is the assumption that all restaurants operate the same, and all employees are on the same level. Canoe, on the 54th floor of TD Bank Tower, in downtown Toronto, is very different from the Red Lion Smokehouse in Thunder Bay. The wages and living expenses of staff are radically different. Even within a single restaurant, there are multiple classes of employees. It’s common for cooks and dishwashers to be paid hourly or daily, while chefs, sous chefs and front-of-house managers take a salary. For servers, a lower minimum wage (which has also increased, from $10.10 to $12.20) is subsidized by tips, a portion of which is sometimes redistributed to other employees — though rarely in an amount significant enough to keep servers from taking home twice as much as cooks.
The concern I hear about most often from mid-tier restaurateurs is that they already pay cooks a competitive wage at $15 an hour — but once their dishwashers are earning that, they’ll have to raise everyone else’s pay too. Owners are also angry that they have to give another $2.10 an hour to servers, money they’d rather give to cooks.
One solution I’ve seen people flirting with is cutting a bigger slice from the front-of-house tips to share with the kitchen (which is legal, if not kosher). The strategy would bump back-of-house employees’ pay past the new minimum — which some owners see as necessary to retain cooks (who are in short supply) — without increasing wages, since doing that would cost employers more in EI contributions, CPP contributions, vacation, and holiday pay. (Sunset Grill, a chain of breakfast restaurants with locations throughout Ontario, has already tried this move. It has not been popular with staff.)
Cooks and restaurateurs who use day rates are, until that barbaric practice is outlawed (which last year’s Changing Workplace Review recommended), exempt from any changes. If you still have cooks working a 12- to 14-hour day for $150, congratulations: you’re getting away with an even bigger crime.
Before these recent changes, the Ontario minimum wage barely kept pace with inflation. Between 2010 and 2015, it rose just $1, from $10.25 to $11.25. Meanwhile, restaurant costs — rent, fuel, meat — have skyrocketed.
Restaurateurs are thinking creatively about portion size, menu size, cutting food waste, and adjusting hours to maximize efficiency, but the fact is that prices will go up — end of story. In recent months, restaurateurs have not been asking whether prices should rise, but how much.
“High-end restaurants already have a margin that will allow them to absorb it more,” says Verma. “Whereas small ones, they can increase a fish taco from $4.99 to $5.49 and their clientele will keep coming back. But there are a lot of small mom-and-pop shops, and they will just have to absorb a reduction in their profits. That’s the reality. The burden falls heavily on the most vulnerable. But that’s the law of the market, that the fittest survive better than the weak ones.”
Verma believes the rise in cost is part of the provincial government’s strategy: the idea is that, given southern Ontario’s strong economy, disposable income from members of the health, law, tech, and real-estate sectors will pay for the increased costs the minimum-wage rise will create.
“That’s the bet on which this policy has been formulated. Whether this bet pays off or not, time will tell,” says Verma. “The Canadian economy is still vulnerable to global forces. We are a small player. If Toronto gets some of the new technology companies firing on all cylinders, then we’ll be alright. But if we don’t, this could prove to be a bubble. If the bubble bursts in the real estate economy and other sectors, then this minimum wage will really bite into employment.”