Ontario Premier Kathleen Wynne is furious at Tim Hortons coffee chain.
On January first of this year, the minimum wage in Ontario increased to $14 an hour (a raise of $2.40 from last year). Though the legislation was purportedly created to provide a financial boost for low-skill workers living near the poverty line, it appears to already have produced the exact opposite of what it was intended to achieve. The CBC reports:
“When … I read about how this man is treating his employees and responding to the rise in minimum wage, I was pretty upset about it,” the premier said.
‘I think it’s the act of a bully. And if Mr. Joyce Jr. wants to pick a fight, pick that fight with me.’– Premier Kathleen Wynne
The premier was speaking to CBC News after a report Wednesday that the owners of a Tim Hortons franchise in Cobourg, Ont., were asking all staff members to sign a letter indicating that they agreed to a series of compensation changes, including eliminating paid breaks and asking them to pay the majority of costs associated with benefits.
Economics is a complex discipline. It’s extraordinarily difficult to predict the consequences of new legislation that directly affects business, and, in turn, the economy as a whole.
However, it’s useful to analyze proposals by conceptualizing that economics is the study of human action, based on the notion that humans engage in purposeful behavior. This deductive methodology that studies human action is called praxeology.
Though sometimes criticized and utilized much less than empirically driven methodologies, praxeology can serve as a practical foundation for determining how individuals act under a variety of economic environments. It can aid in understanding what incentivizes individuals to act in certain ways.
We can begin the analysis by asking two questions:
- How will the legislation cause people to react?
- What affect will the legislation have on the economy in the short run and long run.
In society, individuals act out a variety of roles: minimum wage workers, managers, business owners, customers, welfare recipients, criminals, investors, parents, politicians, union bosses, illegal immigrants, public sector workers, shareholders, etc.
How will different groups of people act once a given policy or law is instituted? What will they be incentivized to do? Will their actions spur a virtuous or vicious economic cycle? And what will be the implications months, years, and decades from now?
Naturally, when faced with increasing costs brought on by minimum wage hikes, business owners offset the cost by reducing hours for workers, scaling back benefits, or abolishing paid breaks. Some opt to invest in more automation.
It’s remarkably foolish for anyone to be surprised by the reactions of Tim Hortons franchisees. No business owner wants to see their expenses increase, in the same way that no home owner wants to see their mortgage, property taxes, and utility bills increase.
The Tim Hortons franchisees could be finding inventive ways to cut back on costs, as they are finding little in the way of support from the corporate parent, TSX-listed Restaurants Brands International.
Restaurant Brands bought Tim Hortons in 2014 and merged it with Burger King. Franchisees have since decried the path the iconic coffee chain has been taken down: massive cost-cutting and and a perceived lower focus on quality, which they worry could tarnish the brand and hurt profitability in the long run. The fact that these measures are being foisted upon them while the Wynne government implements relentless wage hikes compounds the severity of their predicament.
It remains to be what effect the Ontario minimum wage hike will have on the broader economy. As noted in an article earlier this year, economists are ambivalent on the question of whether the wage increase(s) will work to the detriment of workers.
Instead of lambasting the franchisees, perhaps Wynne should take a long, hard look at her own government’s excesses: Ontario’s total debt is well north of $300 billion.