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Monday, January 8, 2018

With the Minimum Wage, Who’s the Real Bully?

Raising a worker's minimum wage doesn't magically increase their productivity, so something has to give somewhere.

What do economists predict employers of low-wage workers will do when a government raises the minimum wage by a large amount, say, $2.40 an hour?

An increase in the minimum wage doesn’t magically make low-wage workers more productive, so we predict that employers will reduce other components of the compensation package: reduce paid breaks, reduce their contribution to benefits such as health and dental insurance, and reduce other components of the pay package.

The Wisdom of the Coffee Shop

That is exactly what two owners of Tim Hortons coffee shops in Cobourg, Ontario are doing in response to the $2.40 per hour increase in the minimum wage that became law in Ontario on January 1. This is taken from a Canadian Press news story published in The Globe and Mail, a major national publication based in Toronto: 

In a letter dated December 2017, Ron Joyce Jr., son of company co-founder Ron Joyce, and his wife, Jeri Horton-Joyce, who is Tim Hortons’ [sic] daughter, told employees at two Tim Hortons restaurants they own in Cobourg, Ont., that as of Jan. 1, they would no longer be entitled to paid breaks, and would have to pay at least half of the cost of their dental and health benefits

The minimum wage in Ontario between October 1, 2017, and December 31, 2017, was $11.60 per hour. As of January 1, it is a whopping $14.00 per hour. In U.S. dollars, as of today, that is $11.20 an hour. (The average hourly wage of workers 15 years of age and over in Ontario in November 2107 was $26.82. So the new higher minimum wage is 52% of the average wage.)

The Inevitable Backlash

And what was Ontario premier Kathleen Wynne’s reaction? Was it: “Oops. I blew it. I should have realized that employers would adjust to make it worthwhile to keep hiring their lower-wage and lower-productivity workers?” No. Was it: “I should have also realized that employers and employees are better than me at coming up with the optimal mix of money wages and other benefits?” Again no.

It couldn’t have been her fault. Instead, she attacked the employers. The news story continues:

Premier Kathleen Wynne said if Joyce Jr. wants to challenge the Ontario government policy, he should come directly to her and not take it out on his workers

But they didn’t challenge the Ontario government policy. Instead, they announced how they were going to comply with it. Ms. Wynne doesn’t even get the basic story right. 

And what is Wynne saying would have happened if they had “come directly to her?” Is she saying she would have reconsidered the policy? Probably not, given that she also said:

When I read the reports about Ron Joyce, Jr., who is a man whose family founded Tim Hortons, the chain was sold for billions of dollars, and when I read how he was treating his employees, it just felt to me like this was a pretty clear act of bullying

Kathleen Wynne was right to identify the fact of bullying. She was wrong, however, in identifying who engaged in bullying. To know who the bully is, she need only look in the mirror.

H/T Janet Bufton.

Reprinted from the Library of Economics and Liberty

  • David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at