Kathleen Wynne's minimum wage math doesn't add up - Macleans.ca
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Kathleen Wynne’s minimum wage math doesn’t add up

Opinion: It’s not just that the big increase punishes small businesses. The argument that the minimum wage hike was needed to keep pace with inflation is flat out wrong.


 

Ontario Premier Kathleen Wynne in 2014. (Chris Young/CP)

Mark Milke is an independent analyst, author and consultant in Calgary.

Remember the old joke about the man who kills his parents and then complains he’s an orphan?

Something like that unreal grievance applies to Ontario Premier Kathleen Wynne’s verbal attack on the families that founded Tim Hortons, some of whom still own a franchise. Recall how Ron Joyce Jr., and his wife Jeri Horton-Joyce, recently scrapped paid breaks for employees and will require them to pay for half their health and dental benefits. The move came in response to a 21 per cent increase in Ontario’s minimum wage, to $14 from $11.60 on New Year’s Day.

In response, Wynne claimed the franchise owner’s move was “a pretty clear act of bullying.”

RELATED: Canada’s youth are the clear losers from a higher minimum wage

I’m not surprised the Ontario premier would slag the Joyces; Ron Jr.’s father’s net worth (estimated at $1.4 billion) makes them an easy target for a premier eager to engage in class warfare to garner such votes.

The Wynne Strategy: Punch and redirect

Wynne’s politically inspired verbal punch allows her to redirect public attention from the real cause of such cuts in employee benefits: her government’s policies which have driven up costs for everything from power to pay and unsustainably so for most business owners. Unlike politicians who run red-ink deficits forever, business must remain in the real world. They can’t endlessly pay out more than they bring in at the till. That would lead to bankruptcy.

I digress, but let’s consider some of the arguments advance in favour of the recent—and rather high—minimum wage hikes.

One is that Ontarians cannot live on $11.60 an hour. Let’s call this the pretend-moral argument given it starts with a “should” as opposed to what’s possible. (It’s akin to telling a blind man to see but without the help of divine intervention.) Such assertions are of little help if the economics of a business such as cash flow or consumer’s abilities to pay higher prices are ignored.

To grasp this, forget statistical outliers like the son or daughter of the Tim Hortons founders. Instead, imagine most small business owners. Ponder a small sandwich shop with 10 employees who each work 40 hours a week, 50 weeks annually at minimum wage. Do the calculations back to last September when Ontario’s minimum wage was $11.40 and the extra cost is $52,000 annually, a 23 per cent cost increase for that business in just three months. It’s also more than the cost of two jobs at that sandwich shop.

That increase is why the Bank of Canada—a source the Wynne government will find difficult to dismiss—warns 60,000 jobs in Ontario and across the rest of the country may vaporize: because small enterprises can’t simply spend more on wages, on demand by politicians, much as some might like to operate in such a fantasy land.

To wit, the notion that a business owner and/or consumer should just “pay more” is a magical concept disconnected from reality; there is no guarantee consumers will show up to pay almost one-quarter more for their food now than they did four months ago. Nor are most small business owners awash in cash flow and profits: For some, that extra $52,000 might have been the salary an owner paid herself last year. Now that’s gone and she is supposed to work for free?

Want the minimum wage indexed to inflation? OK: Think “$7.72”

Another argument advanced for raising the minimum wage is to keep pace with inflation. Here, every provincial government has massively overshot the target.

With a look back as far as the data goes, here’s what the 1965 minimum wage would be today in every province after adjustments for inflation (and which ranged from 70 cents to $1.05):  Newfoundland and Labrador: $5.41; New Brunswick, $6.18; Quebec and Manitoba, $6.57; Saskatchewan, $7.34; Ontario, Alberta, British Columbia and Prince Edward Island: $7.72; and Nova Scotia, $8.11.

In short, if that’s your argument, time to find a new one. In general, the focus on the minimum wage skips two useful issues:

First: Is it the best way to help the working poor? Answer: no, because the policy ignores the need for productivity gains and cash flow if wages are to be raised; it also ignores how targeted help is always better than virtue-signalling by governments using other people’s bank accounts.

COUNTERPOINT: Why a $15 minimum wage is good for business

Second: If politicians really wish to help those with minimum skills and poor job prospects, here’s some advice: stop killing blue-collar employment relative to the geographic or natural advantages that exist in those same provinces.

That includes manufacturing  jobs in Ontario killed off by ever-higher power prices and well-paid resource sector jobs in B.C., Alberta, Quebec and in Atlantic Canada—oil, gas, mining and forestry exists in all those places—that get killed or are never created in the first place because of government policy and/or chronic opposition to development.

A modest proposal: Focus on opportunity

Consider, when Alberta’s energy sector was allowed to thrive, the minimum wage debate in Alberta was peripheral. Between 1997 and 2014, just 1.7 per cent of Albertans made the minimum wage, the lowest proportion in the country. That’s because investment was gushing into the province. With help-wanted signs everywhere, employees—not employers—had the bargaining edge. Also, the investment flows meant high wages were sustainable. (For the record, the oil and gas sector has recovered south of the border where investment-killing carbon taxes are absent and protests et al. have less effect on that industry.)

Politicians who care to help the working poor and boost low-income wages should enact policies that allow entrepreneurs to flourish in their provinces. That’s what drives sustainable wage growth, not politically contrived, economically anti-reality policy which destroys jobs. Or, when coming from the Ontario premier, is also accompanied by the fake cry of a self-made “orphan,” a premier who blames businesses forced to grapple with burdens imposed by her own government.

MORE ABOUT MINIMUM WAGE:


 

Kathleen Wynne’s minimum wage math doesn’t add up

  1. To raise minimum wages is not effective. Countries with higher income, have higher prices ie. higher cost of living. The minimum wage earners will feel richer short-term, but over time as wholesale/ retail prices must be adjusted upwards they will be no further ahead. Higher skilled, supervisors, managers will demand higher salaries to maintain the gap above unskilled entry level workers – everyone’s salaries will only be pushed upwards across all industries.

    We should look at the bigger picture, not thru a small lenses at the fastfood/restaurant sector only. Higher and higher minimum wages (leading to higher export prices) make Canadian businesses and products less competitive worldwide. The ability to sell to a much larger world market (via exports) than the relatively small population of Canada leads to greater overall country prosperity.

    • Canada is moving toward a service sector country. Code/Robotics is going to take a lot of jobs away both on Bay and Main st.

      I really don’t know who will be able to afford to shop at Wally’s never mind the Dollar store. We can’t all work in the service sector.

    • Higher prices. Higher inflation. Lower currency value. Exactly how governments have been funding deficits for a looong time. Didn’t you know?

  2. Speaking of bad math. I think the author needs to go back to math class. A jump from $11.60 to $14.00 is not a 17% increase it is a 20.7% increase. Ergo we must assume that the rest of the opinion is as faulty as the quoted calculation. Regardless, any business that cannot afford to supply living wages and benefits to it’s most valuable resource, (I.e. it’s employees), should analyze their business plan as maybe their business plan is faulty. Take it up with head office. They are the problem. Don’t take it out on the employees.

    • I agree the math is horrible. I had a tough time reading past the glaring mistake.

      It also completely misses the fact the government is the biggest winner from this increase. If this really was about putting money in the hands of low wage earners, their deductions for income tax, CPP, UI would not increase. But their deductions will increased by almost 50% – all paid to the government. At least let them keep the money!

      BTW…the Liberal Budget Plan for 2018 has this new winfall as the primary driver to their planned increase in income tax revenue.

      But let’s make this about a few rich people getting richer. Sigh.

    • There is no end to the ‘mistakes’ here. Consider “Recall how Ron Joyce Jr., and his wife Jeri Horton-Joyce, recently scrapped paid breaks for employees and will require them to pay for half their health and dental benefits.” – they did no such thing and publicly excoriated the several franchises that did. Twisting the facts is a bad habit.

  3. It’s been proven time and time again that adding policies that save companies money DOES NOT translate to more jobs or higher income for existing employees. Companies do have to make a profit but the percentage of increases to that profit just adds to the companies bottom lines and often is little benefit to the employees, at least they don’t improve at the same rate.

    There are obviously exceptions at the small business level, and a lot of cases where businesses suffering can’t afford any added costs, these are the exceptions that government should help subsidise. There are many cases and studies proving higher minimum wages do translate to a more stable economy and higher standard of living.

    There obviously does have to be a balance between forcing policy that hurts employers and providing policy that supports them. You don’t have to look very far to find a wealthy company trying to work there way out of having to pay more for anything. If you can pay someone a dollar an hour to do the same work as they would do for fifteen why would you! Obviously our morals say who can live on a dollar an hour we must pay them more!… but no one ever said we were very moral animals, especially after looking at our balance books at months end.

    • I think you read this whole mess wrong. This isn’t about saving companies money, it’s about costing companies money. A Horton’s franchise costs the franchisee close to $2 million backed by huge mortgages. Most of them have 8 to 10 employees behind the counter and are open at least 12 hours/day. The current increase in minimum wage will reduce profit by over $100,000/year. When it gets to $15 at the end of 2017 that lost profit will be around $150,000/year. How would Wynne like to have her own pay cheque reduced by that amount?

      • You’ve hit on one of the most important issues – and one which gets virtually no attention. The mortgages held by the Tim Hortons owners are based on the value of the franchise and their ability to pay (profits/cash flow). This significant hit to their bottom line affects both their ability to pay the loans and the value of their franchise. If they have a renewal coming up they could very well be faced with a scenario where they can’t renew their loans or they pay a higher rate based on risk. The results of Wynnes folly could be devastating to small business owners.

  4. It is easy to use the inflation calculator to try and calculate item costs. And then assume minimum wage also matches. Sadly that is not how it works. As its not just inflation its buying power. So a cheeseburger in 1992 was .39 I use to buy them all the time on the way home from work. Using the same calculator that then is .61 cents. How much is that cheeseburger?

    Or compare it to housing costs?

    The simple fact min wage has not kept past with the cost of living. Specifically in the cost to live.

    You also miss the fact that the province lowered the tax rate on these companies from 4.5 to 3.5%

    That the claw backs from many of these companies exceeds the cost of the wage increase?

    The issue here is in our modern economy, companies have become profit margin centric. They have forgotten the concepts of community and healthy wage.

    We have seen a war wagged for the past 20 years against the employee. 100 years of labor strife to bring the employee a decent wage, and working environment is vanishing.

    The argument used by these companies is invest in stocks or earn an education to a better living. Forgetting there is a fixed number of these high paying jobs.

    From 1940 to 1990 companies averaged 7% profit margins this was when taxes where at 50% from 1990 through today we have seen a dramatic decrease in taxes down to 9.5% federal and 3.5% provincial.

    Profit margins have flourished jumping into the 40% range. Timmies is in the high 20’s lower 30’s.

    As we saw all these various actions from government to help business. The expectation, just as you hear it down south. The lowered taxes and regulation would see the companies invest in the employee. And, that has not come through. So now the various government levels are trying to put some measure in place to make sure companies return these windfalls back to the employee.

    And like expected the companies are crying foul. Just as they cried foul when measures of control were places on TPFW’s.

    Give them some time, the noise will abaite and life will move on. Those that don’t adapt will fold, and new companies able to work in such environments to earn a penny will step in.

    What we are seeing is a correction of the past 17 years.

    • “That the claw backs from many of these companies exceeds the cost of the wage increase?”
      Do you have any evidence of that?
      BTW IMO TH’S was dumb. They should have avoided this mess by just raising their prices. Been to McD’s lately?

      • Yes, I’ve been to a McDonald’s recently. Where there use to be 4 cashiers taking orders, there was now only one. The other 3 have been replaced by self serve stations. This was one of many test sites preparing for the minimum wage hike. Goodbye McDonald’s employees. Those were excellent entry level jobs that taught young people the discipline and responsibility associated with having a job.

    • Thanks Charles for pointing out those flaws in Milke’s reasoning. I also found the article incomplete and misleading. His argument that the minimum wage has more than kept up with inflation is incredibly disingenuous and Macleans’ editors shouldn’t have allowed his analysis to be printed in this fashion.

      You point out the dramatic decreases in the corporate tax rate. I would also highlight other business friendly measures that seldom get aired in these discussions. Such as the $1000 hiring credit that’s paid to ON employers upon hiring someone aged 15 to 29. In addition, another $1000 is paid to the employer if they stay on for at least 6 months. That equates to a $1.00/hr subsidy based on a 40 hr work week for the first year of employment.

    • Thanks Charles for pointing out those flaws in Milke’s reasoning. I also found the article incomplete and misleading. His argument that the minimum wage has more than kept up with inflation is incredibly disingenuous and Macleans’ editors shouldn’t have allowed his analysis to be printed in this fashion.

      You point out the dramatic decreases in the corporate tax rate. I would also highlight other business friendly measures that seldom get aired in these discussions. Such as the $1000 hiring credit that’s paid to ON employers upon hiring someone aged 15 to 29. In addition, another $1000 is paid to the employer if they stay on for at least 6 months. That equates to a $1.00/hr subsidy based on a 40 hr work week for the first year of employment.

    • Anything published by Press Progress aka the Broadbent Institute is published with a pre-determined conclusion. No thanks. Did you even read the article? What a piece of garbage propaganda.

  5. Regardless of mathematical inaccuracies, supposed “corrections”, etc – here’s the real thing that’s transpiring that no one seems to be talking about. This Ontario government, and its predecessor (Dalton) have fundamentally put this province, and because of that this country, behind the 8-ball. This is nothing but a MASSIVE tax grab – cleverly described for the simpletons as a wage increase. Yipee, vote Liberal. Allow me to explain (I’ll use easy, rounded math for those who don’t see this and the 20.7% increase as my base)
    Previous wage $11.60/hr (25% tax – gov’t gets $2.90/hr)…$14/hr ($3.50/hr) multiply by HOW MANY hours, multiply by HOW MANY workers.
    Tim’s (those evil profit gauging heathens – sarcasm – they started as a ‘mom&pop’ shop in the day) raises small coffee from $1.50 (tax in – so $1.33 + .17 hst) to $1.61 (20.7% increase to stay even) add .21 hst…but it’s only 4 cents…let’s say an average of 10 small coffees are sold by tims PER HOUR (that is a real safe number) PER STORE just in Ontario. Their website says they have 1847 locations in Ontario. So 4 cents x 10 an hour = 40 cents per hour x 1847 locations = $738.80 per hour just in ADDITIONAL tax revenue. 24 hrs in a day = $17,731.20 per day = $6,436,425.60 per year based on 363 days open (give them Christmas, 1/2 day Christmas Eve & 1/2 day New Year’s Day…shoot me if I have one day too much – who cares. This is ONLY from Tim’s. Add McDonald’s, your glorified Starbucks…the list is endless. Now add your supplies for your office from, say , Staples…their ink, paper, etc will go up…extra tax revenue. Think about everything you consume – gas, food…think about all those things. If the government can get $6M just from Tim’s? Money comes out of the economy, consumer changes spending habits (down). This is a tax grab! As prices go up, taxes get added, those making $11.60 – now $14, still won’t be able to afford to live – sorry, but that’s reality. Wages cannot go up without prices going up. Where does the money come from – this province continues to cutback various inalienable Canadian “rights” – I use that term loosely – such as healthcare and yet Ms. Wynne says Tim’s is bullying the worker. Ms Wynne, you’re bullying business! And, when the worker gets laid off, they go on the ‘dole’, here it comes, more taxes to pay for that. And yet, people in Ontario don’t question what this government is doing with the money – disgraceful. Oh, some of the hst goes to the feds – Justin – more vacations, trips – has he worked yet? Keep taking our money! If anyone’s still reading this – shouldn’t Wynne et al all be taking a pay DECREASE – money’s endless – let’s ask them for theirs cause they’re stealing ours. Don’t react to this until you actually stop & figure this out.

  6. The minimum wage is an incremental policy that originates with abolishing slavery and then indentured servitude; then the introduction of a minimum wage that mitigated outright exploitation; then it crept up; now it moves towards the notion that minimum wage workers should have sufficient earning power to rise towards the poverty level; the notion of a living wage has yet to take hold. The author, on the other hand, spends a lot of time calculating how we might move backwards in history, only omitting to calculate the cost of past slavery in inflation current adjusted dollars.

  7. All these companies complain that customers won’t pay higher prices, but if all companies have to raise their prices to cover these pay increases, we as consumers won’t have much choice – there won’t be cheaper competitors. This is especially true of the restaurant industry. Moreover, governments have already talked about taxing junk/fast food – and if I am going to pay more for a doughnut, I’d rather see the money go toward an employee at Timmy’s than to some sort of nonsense government fund to put commercials on television reminding us that we should eat better. And if we as a society simply eat fewer doughnuts, I am not completely convinced that’s a bad thing, even if some franchise owners will be tightening their belts for reasons other than weight loss.

  8. I for one am all for great debate — even decent debate, in a pinch.
    Unfortunately, this usually calls for the use of wide arrange of facts when presenting an argument or a story.
    With the writing of this article on this page I am inclined to believe that this is a Category C or D “slam piece.”
    Convinced that these changes will be bad for most of us, I am not (yet!)

  9. I do not know how many of these right-wing commentators work for minimum veges when they make comments on this subject or subjects that disagrees with their ideology of “fairness”? Probably none!!
    In the city I live in, the owners of Tim’s restaurants have huge houses and drive very expensive cars. The same thing is with the owner of the Swiss Chalet.
    When 100 highest payed Canadian Executives make in a half day what average working Canadian make in a year (assuming $52 K per year gross), then you see that the same average Executive makes in two hours of a person on minimum wage of $14 per hour. Is that too much for you to “swallow”?

    • I know a family that owns 3 Swiss Chalets. 2 in Toronto and 1 outside Toronto.

      The family member I know lives outside Toronto. They live comfortably but certainly not in mansions. He drives a diesel Chevy truck. I’ve observed they work long hours, weekends, holidays, etc.

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