Minimum wage hikes must be stalled

An opinion piece by Tony Elenis, president and CEO of the Ontario Restaurant Hotel & Motel Association (ORHMA). Ontario is just one of many provinces facing minimum wage increases this year.

The past few months have been truly dismal for employment in Ontario as a series of companies have announced reductions in their workforce or the closure of their operations altogether. Statistics Canada reports that employment fell by 71,000 jobs in November, with the vast majority of those losses (66,000) concentrated in Ontario.

Ontario’s manufacturing sector was particularly hard hit with a net employment drop of 38,000. A combination of rising costs, falling demand both at home and abroad, and the impact of the credit crunch on the financing of business has produced a ‘perfect storm’ effect with devastating results. This impact is also being felt strongly in Ontario’s hospitality sector which has been enduring a storm of its own since SARS and 9/11 and has seen a minuscule 0.4 per cent cumulative real change in sales since 2000 versus 9.7 per cent for the rest of Canada. This is alarming especially considering 60 per cent of the foodservice mix in Ontario is made up of independent restaurants.

Against this background the McGuinty government is considering a series of measures designed to stimulate demand and provide assistance to large corporations. But one area which has seen less government action is mitigating cost increases on small businesses such as those in the foodservice sector.

On March 31, 2009 the foodservice industry will see the next increase in the differentiated minimum wage for liquor servers and students to $8.25 and $8.90 per hour respectively. These increases will come on the heals of five previous increases and ahead of another in 2010.

While employers want to provide their employees with the best working conditions and wages possible, economic realities and fiscal restraints make further increases to these wage rates an added burden to an already saddled bottom line.

Despite these increases, the resulting effects on the wage earner are questionable. A comprehensive literature review by Dr. Morley Gunderson, sponsored by the federal government in October 2006 for the Federal Labour Standards Review, found that there was little, if any, evidence that an increase in the minimum wage had a positive effect on the living standards of employees. However, Gunderson’s analysis has shown that it has had a measurable negative impact on hours, prices, and sustainability within the service sector. And these effects have been produced during a period of strong and continuous economic growth that enabled businesses to absorb the increases.

We are now in a very different environment. With economic performance lagging, we are likely to see a significant increase in the numbers of unemployed in the coming year. The foodservice sector is highly dependant on disposable income, and the detrimental effect of slower consumer spending on operators has been noticeable in the past months. Gone is the notion that foodservice employers can absorb the cost of continued increases to the differentiated wages of students and liquor servers by simply passing it along to the consumer at a time of record low consumer confidence.

To support struggling foodservice operators it is crucial that the minimum wage, and in particular the differential minimum wage for liquor servers, be frozen until economic conditions improve. A freeze would bring welcome relief to the bottom lines of small business (nearly 31 cents of every dollar spent at a restaurant goes directly to payroll) and would act to preserve current and future employment prospects.

Scheduled increases are likely to hit hard among youth which represent 45 per cent of those employed in Ontario’s foodservice industry. Young people are more vulnerable during a slowdown than their more experienced counterparts, and past experience has shown that youth employment decreases much more so than that of adults when the economy begins to slow.

This is particularly worrisome. Ontario’s foodservice industry is the largest employer of youth and it is essential to the industry to keep our young people employed in order to develop the workplace skills necessary for a successful career and ensure an adequate pool of talent in the future. A higher minimum wage is likely to prove an insurmountable barrier to the chances of many during an economic downturn.

The ORHMA has been pressing the McGuinty government to be risk averse when charting the future direction of the differentiated wage. We need to do all we can to preserve employment, and that means not making it more costly to employ people at a time when businesses have no certainty of future prospects.  The new year and possibly beyond will see all wage increases across the economy restrained. It is only logical that we apply this restraint to the minimum wage as well.