B.C.'s plan to raise the province’s hourly minimum wage to $15 by 2021 will benefit some workers but will also reduce demand for young workers, increase prices and squeeze margins for small businesses, especially in the food services sector, experts say.
The B.C. government announced August 15 that it would raise the minimum wage by $0.50 in September, to $11.35, and to $10.10 for liquor servers. B.C. is the third province to commit to a $15 minimum wage, joining Alberta and Ontario.
According to the provincial government, the number of B.C. employees being paid the minimum wage in 2016 was 93,800 out of 1,958,600 paid employees (4.8%). Of the 93,800 employees, 50,600 (54%) were aged 15 to 24, 13,100 (14%) were aged 55 or older, and 23,900 (25%) did not complete high school.
Mark Thompson, professor emeritus at the University of British Columbia’s Sauder School of Business, supports the move toward a $15 minimum wage.
“I think it’s long overdue,” Thompson said. “We’re worried about inequality, poverty and so forth. This is not the silver bullet, but it’s going to help a lot of people.”
The business community’s biggest concern raised is that small businesses, particularly in the food services sector, will have trouble generating profit in an already low-margin business.
Canada’s food services industry has an average profit margin of 2.8%, according to a 2016 Conference Board of Canada news release. To compensate for increased labour costs, owners may consider cutting the number of jobs and/or employee hours, said Ian Tostenson, president and CEO of the British Columbia Restaurant & Food Services Association.
He added that the average annual revenue for a B.C. restaurant is between $800,000 and $1 million. Labour costs for a viable $1 million business are roughly 30% ($300,000). At 40%, after the minimum-wage increases, annual labour costs would rise to $400,000, but company revenue would still be $1 million.
“Metro Vancouver is an expensive, tough market,” he said. “Business can pay what they can pay. It’s not like they have this unlimited ability to pay wages. The marginal businesses will close, [while] the businesses that can may reduce profitability [and] they’ll have to do several things – they’ll have to streamline and cut hours; they can try to reduce operating costs to the extent that they can’t really do a lot there, and/or increase revenue.”
Tostenson is not opposed to a $15 minimum wage, but he is concerned with how fast it will be implemented. The business community, he said, needs sufficient time to prepare for any changes by the government.
“We’re never against a minimum wage going up – it’s just how it goes up and when it goes up that’s really the issue here,” said Tostenson.
“We hope that [the government will] work with us in a very detailed manner to help accomplish their goals and at the same time keeping [up] our sector and employment because we employ a lot of people – about 180,000 people in the province.”
Increasing menu prices is another possibility, but it won’t be simple. Increases will likely be marginal because businesses have to look at and match or outdo their competitors’ pricing, said Thompson.
Product prices also tend to rise naturally every year from inflation, but artificial boosts by businesses can be a gamble, according to Lindsay Meredith, professor of marketing at Simon Fraser University’s Beedie School of Business.
“The thing you want to look at is what we call ‘elasticity of demand’ [or price sensitivity],” Meredith said. “Inelastic simply means, ‘You know what, I don’t care how much you jack up the price, I’m still going to pay up.’ Translated, ‘If my labour costs go up, you pass your costs to me, I’ll pay.’ In the other cases, ‘If you jack up my price even a little bit, I’m walking away from you.’”
With just about half (54% or 50,600) of minimum-wage employees falling into the 15-to-24-year-old age group in B.C., another business concern is that a higher minimum wage will reduce demand for young workers in low-wage jobs.
“It may reduce the number of jobs available for teenagers for sure,” Thompson said. “If you raise the wages, then older people may compete for those jobs. It can very well reduce the opportunities for them, but if it improves the income for people that are trying to live on their own and support themselves, that’s kind of the tradeoff we make.”
Despite business challenges, the minimum-wage change will be positive for the overall economy, he said.
“There have been many studies on this, and they’re all quite polished. Quite similarly, their conclusion is [if] minimum wage is raised on the order of 10%, which is normally what happens in Canada, there’s no discernible job loss. There’s always some people who will not hire workers or will give them fewer hours, but for the economy as a whole, the impact on employment is negligible.”
A University of Waterloo study analyzed the effects of 185 changes to minimum wage on employment rates of teens aged 15 to 19 and prime-aged adults aged 25 to 54 using panel data across Canadian provinces from 1981 to 2011. The study found that a 10% increase in minimum wage has no noticeable effect on prime-aged adult employment, but is associated with a 1% to 4% reduction in employment rates for both male and female teens.
In the U.S., two competing studies were released in June 2017 by the University of Washington (UW) and the University of California, Berkeley (UC Berkeley). The UC Berkeley study analyzed county- and city-level 2009 to 2016 data on all employees in the Seattle food services industry. It found that for each 10% minimum-wage increase in Seattle, food services wages rose about 1%, while there was no noticeable effect on overall employment.
A more controversial UW study examined the impact of a minimum-wage increase for Seattle’s employment across all categories of low-wage employees. The study found that Seattle’s second wage increase to $13 from $11 in 2016 led to an average 9.4% cut in employee hours and a payroll loss of $125 per month.
Seattle was aggressive in its minimum-wage increases, however, which were to $11 from $9.47 in 2015 and to $13 from $11 in 2016 – a 37.3% raise in two years.
“There is good reason to believe that increasing the minimum wage above some level is going to cause greater employment losses than increases at lower levels,” the UW study concluded.
Compared with Seattle, Vancouver can expect to have slower, more moderate increases.
“If you look at the mandate, they’re going to go from $11, roughly speaking, to $15 in four years,” said Thompson. “That’s 10% a year; that’s not out of line with what’s happened elsewhere.”
Thompson noted that the Seattle study is also controversial because its findings stand out from other studies about the minimum wage. It doesn’t account for large businesses, which employ 38% of Seattle’s minimum-wage workforce.
Large businesses should not be left out of the equation, said Meredith, because businesses increasingly seek to make some of their service components automated or self-service. He gave the example of the shift away from flight desks at airports towards self-service check-in machines.
“You have to be very careful how that [minimum-wage increase] gets implemented,” he said. “So, if we have a job where it can be easily automated,… watch out. As you jack [up] the minimum wage, capital will get rid of labour and substitute it with automation or with technology to get the customer to do the job.”
The government said in its August 15 news release that it plans to establish a fair wages commission to consult stakeholders about how to implement future increases to the minimum wage.
According to Labour Minister Harry Bains, details around the fair-wages commission’s composition and terms of reference will be announced in the coming weeks, and the commission will submit its first report within 90 days of its first meeting. •