In the summer, I live near a pretty little village in rural Ontario. The quaint main street is lined with little shops and restaurants, a bakery and a terrific place that sells locally sourced food. There’s even a bookstore. All these places are labours of love for the proprietors. Most of them are marginal businesses at best.
The other day we had dinner at my favourite restaurant, which is owned by an entrepreneurial young chef who moved here from the city. “What do you think of the new minimum wage?” I asked. This is the one that will push Ontario’s minimum wage to $15 an hour by 2019. (It’s currently $11.40.)
He looked pained. “I would really like to like it,” he said. “But it’s going to hurt. Most of the people who work here are local kids. They’ve got no skills. We train them. Then what do we do about our skilled people? Our line chef makes $15 an hour.”
It’s like that up and down the street. The folks who own the bakery, the bookstore and the sandwich shop are socially conscientious. But as several of them confided, a $15 minimum wage – roughly a third more than it is now – means their young unskilled employees will be making more than they do.
Ontario’s progressive Premier, Kathleen Wynne, is in the vanguard of a $15 movement that is sweeping both Canada and the United States. Advocates say a $15 minimum wage will reduce both poverty and inequality. And few people will shed a tear for the big, profitable chains – the Wal-Marts and the Loblaws of the world – that will have to ante up. But I don’t think Ms. Wynne thought too hard about the impact on small communities, where median wages and the cost of living are far lower than they are in big cities such as Toronto. The unintended consequences will be hard to measure. But they will be real.
A new study from the Atlantic Institute for Market Studies (AIMS), a Halifax-based think tank, makes the same argument. It’s the young and low-skilled workers who will be priced out of the market. “The loss of training opportunities caused by minimum-wage legislation is especially problematic,” the authors say. They also point out that the higher the minimum wage is compared with the median wage, the greater the “disemployment effect.” This is a real problem in the Atlantic provinces, where minimum wages are increasing rapidly, even though median wages are among the lowest in the country. Many mainstream economists point out that the income losses from raising the minimum wage are often underestimated.
Ms. Wynne argues – correctly – that nobody can live on $11.40 an hour. Yet few people have to. Ms Wynne likes to depict minimum-wage earners as hard-pressed single mothers. In fact, statistics from 2014 referenced in the AIMS study showed that 58 per cent of them were between 15 and 24 years old, and 57 per cent lived with family. Only 2.2 per cent were unmarried heads of household with at least one minor child.
Not all the opponents of minimum-wage hikes are greedy fat cats. Some of the most adamant make minimum wage themselves. In Maine, restaurant servers revolted en mass after voters passed a referendum that would hike their wages from $3.75 to $12 by 2024. (The minimum wage for non-tipped workers is $7.50; federal law allows tipped workers to earn less.) The servers figured that such a huge increase would destroy their livelihoods because prices would go up and people would stop tipping. Sue Vallenza, a 55-year-old bartender in Kennebunk, Me., told The Washington Post she made $20 to $30 an hour before the referendum, but after it passed, her hourly tips fell off by $2 or more. “I don’t need to be ‘saved,'” she declared. “You can’t cut someone off at the knees like that.”
The pressure from the restaurant workers was so great that state legislators overruled the referendum. Other states and cities with plans for big wage hikes are also facing pushback from tipped workers. The message is loud and clear: We’re doing fine, so don’t mess with our tips.
A lot of well-meaning people argue that businesses that can’t afford to pay a decent living wage shouldn’t be in business at all. There’s an intuitive appeal to that. But then I look around my small town, where so many local business owners – including the organic farms that sell us such tasty, wholesome, righteous food – are barely scraping by. They all want to reduce poverty and inequality. But raising the minimum wage won’t do that. It will only make their lives that much more precarious.
Published in Daily Times,August 07th 2017.