David R. Henderson  

Kathleen Wynne is Wrong

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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 for benefits such as health and dental insurance, and reduce other components of the pay package.

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 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 an 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.)

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.

HT2 Janet Bufton.


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COMMENTS (10 to date)
Hans writes:

Very informative piece, Mr Henderson.

Those whom have crossed the border or
have spoken with "ah" Canadian or two,
also know the sky high cost of goods
and services are!

The Free Lunch Syndrome, is the real Greater
Fools Theory. Now practiced by nearly one
half of all Canadians.

God save the Queen.

Thaomas writes:

This goes once again to show that wage subsidies are a better means of transferring income to low-paid workers than minimum wages.

PaulS writes:

"...reduce their contribution for benefits such as health and dental insurance..."

But...but...but...hold on a sec... This is Ontario, one of the more liberal provinces of liberal Canada.

OK, this is off-topic, but then again it isn't really. In the 2016 US election campaign, we were given the impression from certain quarters that if the US just implemented a Canadian-style health system, our worries about health care would be over - and the irrationality of expecting all employers to be expert health-insurance agents would be deservedly gone. From the piece at hand, I guess not.

So, at least in rough terms, what does the vaunted Canadian health system leave out, why does that allegedly wonderful and comprehensive system leave it out, and what does it cost to get it covered? Are we talking $50? $5000?

David R Henderson writes:

@PaulS,
So, at least in rough terms, what does the vaunted Canadian health system leave out, why does that allegedly wonderful and comprehensive system leave it out, and what does it cost to get it covered? Are we talking $50? $5000?
VERY good question. I wondered about that too. I’m pretty sure that Medicare (the Canadian term for their policy) doesn’t cover dental. And I’m somewhat sure you can get private health insurance for items that Medicare doesn’t pay for. But I will check with some Canadian friends and get back to you.

Billy Kaubashine writes:

One unintended consequence of a rise in the minimum wage that is rarely discussed is what I call "worker churn". The higher wage attracts more productive, better educated workers with better language skills to jobs that they previously shunned. (Think of retirees at fast food restaurants.)
Thus, the people the wage increase was intended to help find it harder to get - or keep - entry level positions.

Colin Barnard writes:

@PaulS
Being from David's home province, I can help with this one.

Medicare is administered by the province, so there will be differences.

Dental is not covered anywhere.

Prescription drugs may be covered. As each province has its own drug formulary, deciding which drug will be covered and at what percentage.

Certain therapies may be covered. Manitoba is the only province to cover chiropractic care. Physiotherapy is often covered if it is illness or surgery related, but not if it is sports related.

What is covered is the services you would normally associate with a hospital or doctor's office. Surgery, emergencies, family doctor visits, and testing. Not only are they provided by the province, it contravenes the Canada Health Act to offer theses service for a fee.

This week in Manitoba, the provincial government is under scrutiny for allowing a private clinic to provide ultrasounds and echo cardiograms for a fee.

Jon Murphy writes:

@Billy Kaubashine

One unintended consequence of a rise in the minimum wage that is rarely discussed is what I call "worker churn". The higher wage attracts more productive, better educated workers with better language skills to jobs that they previously shunned. (Think of retirees at fast food restaurants.)

Absolutely. And this is something people who advocate minimum wage as an efficiency wage should keep in mind.

Kevin Jackson writes:

I live in Canada (Alberta, not Ontario). Healthcare coverage is a mixed bag, but generally if you're seeing a doctor or nurse, it's covered. Specifics are hard to pin down though. Dental, prescriptions, physio, psychologists/psychiatrists, optometrists, equipment (I bought a cpap machine for sleep apnea recently) are not covered, for example. Getting coverage thorough work, while not as big as in the US, is still important, and I see it frequently listed as an incentive on job postings.

Don't get me wrong, the coverage we do have is wonderful. My wife is pregnant, and after nine months of doctor's visits, emergency hospital trips, and the potential of induction or a c section in the near future, our only out of pocket expenses will be for parking.

But free healthcare is a myth (even before talking about wait times, the bane of the Canadian healthcare system).

Janet Bufton writes:

@PaulS
So, at least in rough terms, what does the vaunted Canadian health system leave out, why does that allegedly wonderful and comprehensive system leave it out, and what does it cost to get it covered? Are we talking $50? $5000?

To add to what other Canadians have said, I'm in Ontario, the province in question. As others have said, our healthcare systems are really provincial and not federal--the Canada Health Act is federal, and it is what makes it basically impossible to offer parallel private insurance for services that are universally covered by the provincial system. Here many of the things that others have mentioned are not covered: drugs, dental, optometry, and physiotherapy, to name a few things, aren't covered. Neither is therapy. That's just off the top of my head.

We rely on private insurance or out-of-pocket payments for a lot of our system. If you are on social assistance, or if you are 25 or younger, things like drugs and optometry are covered for everyone, but as you can imagine this makes it a lot harder to get off of social assistance. It's especially harsh, imo, on people with mental illness. I think everything is also covered for Inuit and First Nations (though the services are often extremely expensive to provide and low quality) and probably also veterans--though those two programs would be federal.

As you can tell, and as my friends working on health care will quickly tell you, we already have a mixed public and private system, just in a patchwork kind of way.

Why do provinces not cover all services? Because of course we can't pay for every single healthcare related service for every single person in the province and also maintain the other services the provincial government provides (schools, roads, social assistance, provincial courts, and power, to name the most significant competing programs). I feel like this is a disingenuous question.

I can't help but say that the "much vaunted" language gets my back up. Canadians know there are problems with our system (everyone knows about the wait times, and we probably all know someone who just couldn't get a family doctor at some point, just like people in the States can share stories about insurance being a nightmare to deal with, or knows about the lower middle class being carved out by mandates). While Canadians overwhelmingly prefer the Canadian to the U.S. system, both are extremely dysfunctional. Very few (if any?) ratings put either system near the top for cost or value for money. The old habit of pitting these two almost unique systems against one another is particularly unhelpful. Often it causes us to put our preferred system on more of a pedestal than it deserves. Much better would be comparisons to an actual market system or to some of the more market-friendly or at least better performing systems that are out there.

Dan Jennings writes:

I’m perplexed. A business seeks to limit the amount of costs(inputs) while maximizing outputs. A business seeks to minimize costs of doing business and maximize profits. So when a business, already in the throes of having found a balance in which costs can be low enough to keep prices of their products low enough to attract consumers and make profits, has govt force higher costs(higher inputs), people are shocked that the business will then seek out new ways to reduce inputs/cut costs?

I make chili, for five, using 2lbs of meat(we have leftovers for lunch, the next day). If the price of the meat rises 20% to 40%(SeaTac), I am left to make a decision on my budget. Finding an alternative to the preferred meat, now rising in price, or use less meat(no leftovers). If the price goes up more, less meat will be used. We will have less per serving and/or seek alternative fillers.

Why wouldn’t a business owner, facing increased prices, seek to reduce purchasing amounts of their inputs(purchase less labor), seek alternatives(automate and find more productive or higher skilled folk), and find fillers(reduce other compensations, perks, reduce hours or workers)?

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