April 22nd, 2018

Higher wages mean higher costs

By Lethbridge Herald Opinon on January 13, 2018.

There must be a better way to help low-income earners than

by putting squeeze on small-business owners

Brian Hancock


Before I even get started I want to make something clear: I understand that living off minimum wage is tough, maybe even impossible. $12.20 an hour (before tax) didn’t get you ahead in life; it barely keeps you alive and is not what any of us want to go through.

My concern lies in the issues raising minimum wage has caused and who is really benefiting from the increases. I’ve talked to many business owners who launched and live their entrepreneurial dream and almost every one of them is very concerned that their dream may be coming to an end. There has to be a better option.

There are many industries that have traditionally paid minimum wage; the food and beverage industry and grocery stores are a couple that come to mind right away. They are also prime examples of business being affected greatly.

Grocery stores have few choices: raise prices to offset increased costs or decrease costs to offset lower margins. Raising prices? May as well say goodbye to your business overnight. Price is the single biggest key to grocery sales; stretching the income is everyone’s priority. Think about it … if you made $12.20 per hour and it bought you one bag of groceries before, and now you make $13.60 an hour but the price of groceries had to go up, you still buy the same bag of groceries but you pay more. You are no further ahead. Sadly, the only option left is decreasing costs. Some will cut staff completely, others will reduce full-time staff to part-time. I know of one local grocery store that will be shortening their hours of operation to reduce staff costs. The end result? Less paid hours to staff in the hopes of keeping their razor-thin margins.

The fast-food industry saw the increased costs coming – you’ve seen the automated machines to order your burger from. If you think this is the end of it, you’re wrong. That machine doesn’t want a raise, take holidays, get sick or need time off to study. It will not support a local business with its paycheque or greet you at the door; there are a couple of full-time jobs cut right away. I spoke to a local owner who just said, “Looks to me like a couple of staff will be gone and we will have to work a full shift behind the till as well as our managerial duties.”

Restaurants have long been the home of minimum-wage staff; great servers were happy to take the base pay as they knew their tips would far outweigh their base. This one is a double-edged sword. The staff don’t want the raises as they are smart enough to realize a few things: the owner will be the one facing the increased base cost; he has to increase prices or reduce staff levels. Increased prices on the menu mean customers don’t eat out as often; less traffic means more hours cut as staffing is not needed for empty tables.

Then add in the other factor: customers who do eat out are paying more; they know the staff is getting paid more and do not feel the necessity to tip as much. Serving staff have hidden tips from income tax for years; now their base is higher (more tax) and their tips are lower (reluctant customers and less of them) so their take-home pay drops. Funny how a minimum-wage increase in the restaurant industry is going to hurt everyone involved. Again, a local owner I spoke to is going to close a half hour earlier each day to cut costs; he estimated an increase of $108,000 per year in staff wages if he doesn’t. He hopes sales don’t drop too much or he will have to raise his prices as well.

Put yourself in a business owner’s shoes: a 23 per cent increase in staffing costs over two years that they are supposed to just “absorb.” If you were to have your personal costs like cellphone bill, groceries, car payment, gas for your car, mortgage, post-secondary fees increased by 23 per cent, what would you do? Why can’t you “make do” on the same income? You can’t ask for a raise at work or you’re “greedy.” You can’t cut a bill or you’re selfish; can’t ask for help or you’re “pathetic” – and keep in mind that anyone working for $15 an hour last year is going to ask for a raise because they are not willing to work for minimum wage. Something has to be cut; that’s just the real world.

The minimum-wage increase is based on the premise that business owners are lazy fat cats making too much money at the expense of their staff; why else would the burden be placed on them rather than on the government to accept lower tax revenue and help low-income earners?

Not raising an employer’s costs and increasing employees’ take-home pay seems like a much better way to help minimum-wage earners. Making their income go further was stated as the original goal. Surely we can do this without hurting the entrepreneurial dream.

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14 Responses to “Higher wages mean higher costs”

  1. Pecker says:

    How nice of you to plead poverty for your rich friends. While some small business
    will have a hard time with this for the majority it means sharing some of the profits
    with the workers. The big stink from most business owners is it will mean they
    will be slightly less rich if they don’t raise prices. I don’t know a lot of poor restaurant
    owners so there is some room to share the profits.

  2. Steve Bottrell says:

    What do you care about? Money, which is fake, or people, who are real? As long as we have a monetary economy, this is the race. Winners and losers. Sooner or later, we as a species are going to have to face reality. Monetary systems will either have to be relegated to museums or it will probably kill us. There is no positive function of money that couldn’t be replaced right now by technology. And doing so would eliminate so much of the list of negatives. But that would take a new way of thinking about things, and reward bias is hard to overcome in even seemly intelligent people.

    • Steve Bottrell says:

      I’m not against basic income, anything that helps the well being of people is good, but it is not really a solution. Unless its done to excess. And at which point, why even have money? The basic income proposals I’ve seen from various countries, including ours, are far too low money wise and are merely designed to prop up a failing socioeconomic system. Monetary economics won’t be able to handle the efficiency and productivity of technology with out some serious consequences for most of the population.
      If you are into the idea of basic income, I suggest reading For Us The Living by Robert Heinlein. He makes a strong case for Basic Income in that novel. But its BI to excess. Everyone would get 80K or more a year. Imagine that 🙂 But again, at that point, why even have money?

  3. biff says:

    steve, pecker, fes, thanks for your thoughts. but, how do you fail to see the strength of the writer’s position? the real problem is min wage is too high. if we halved it, we could have cheaper groceries, and then no need for those automated ordering machines at mccraps. banks would get rid of their atms, and self serve gas would cease, and we wouldn’t have self checkouts. hmm, we do an awful lot of extra unpaid work after work it seems…. and tips, the servers will be raking it in in tips because all the people earning so little will have more money to throw around on account of cheaper groceries.

    • Fescue says:

      What you are talking about is very complex, biff – how the economy works. I think it is an exaggeration to think that raising minimum wages raises the cost of groceries proportionally – past increases in minimum wages have shown no effect (even though, like today, there is a lot of chest thumping and clothes rending by owners).

      The impetus towards automation (or any capitalization) is to keep wages low (reserve of unemployed and underemployed and precarious workers). So, yes, raising minimum wages may encourage owners to capitalize. But capitalization tends to lower costs, and therefore profits in the long term. When owners capitalize, wages stagnate or decrease (like the last thirty years in North America). But even as wages have stagnated, industry has continued to automate – which is why I don’t think reducing minimum wage will do much to slow down this trend. For the owners and managers of other peoples wealth, the profits continue to be expropriated – as observed by all current studies on wealth capture and distribution. In this, I think Pecker has it right – people’s labour and the natural world create wealth, and the so-called ‘risk takers’ collect it.

      Basic Income, as I understand it, provides a minimum protection against this sort of exploitation. As a result, owners and managers will have to make the workplace more attractive for workers. As Gwyn Dyer said in Lethbridge on the topic, start taxing the machines to help pay for the program. As Steve Bottrell intimated, people are more important than money.

      And thanks Steve Bottrell for the book recommendation – I’ve already downloaded it. Your comments on ‘money’ are interesting, but I don’t know what to make of it yet – an economy without money, hmmm.

    • Steve Bottrell says:

      IMO, min wage is too low, even at $15. We are basically saying I want my coffee cheap, and I don’t care if the person giving me my coffee lives in poverty. This is unacceptable to me. The better off we all are, the better off we all are. The Whitehall studies, and many other studies, show this to be true, and frankly I don’t know how this isn’t obvious to anyone. The minimum wage used to be tied to inflation, and was untied in the early 70s/late 60s. If it had remained tied, it would be around $23 an hour today. Our socioeconomic ideology is based on Malthusian thoughts on scarcity, which has been thoroughly discredited, but the notion that there isn’t enough to go around still holds sway. Rather than have a society based on scarcity, self interest, differential advantage and social stratification, we need to turn that around to one of access abundance, and the common good based on the scientific method. Test everything. The problem with testing things today, is the influence of money. Like I said, reward bias is hard to overcome.

  4. biff says:

    thank you, fes. of course my entry was just a blow up of the herald entry. i am still trying to get my drop from the wonderful wealth created for all via the tickle down economics us suckers had imposed on us almost 40 years ago.
    i agree, a basic income is certainly a better way than now. and the idea of money free – as much as i appreciate the idea – it will never happen so long as we accept a greed based economy.
    along with basic income, i feel the .05% tax is also a necessity if we are staying with a money economy. the fairness it ensures in terms of each paying their fair share of tax, and the savings in terms of enforcing and overseeing and collecting taxes – a far superior approach. the present system is convoluted, bureaucratic-expensive, and ensures that the masses are kept poorer and under serviced. how nice to say goodbye to the ill effects of sleazy loopholes and tax havens.

  5. already extinct says:

    Mr. Hancock nailed it, there’s lots going down the tubes in this province trying to force us all into Mao uniforms and caps. And the simple fact social engineers don’t get is that business people taxed to death follow one of three paths -go out of business – get creative – or leave for higher ground. Dream all you want social engineers but that’s the reality.

    I along with many of my acquaintances have pretty well given up eating/dining (dining ???? hahahah) in commercial establishments. For the most part the the service is absolutely horrible pretty much everywhere you go – then they’re peed if you don’t leave 25% on the tab.

    I came from a family of restaurateurs, myself spending a significant amount of time in it.

    My mother particularly would be shocked to see what has become of an industry she pored her heart and soul into. She hired youngsters, but before one of them ever graduated from the wave board potato peeling unit to wait staff, they had a through knowledge of how to address people, how to time a serving, how to be pleasant, and send a patron on his or her way, saying as they departed they couldn’t wait to come back, and they did.

    Today there is zero, training, zero knowledge of the biz, zero loyalty, because the industry has become one of absentee owners, kids running the asylum, most today spending more time on their “devices” than caring for customer needs. Need help? Hell hang a shingle, hire the first creep, jail bird or kid applying, no criminal check (illegal) no asking age (illegal), no check to see if they have any food handling knowledge, nothing – here’s the uniform – cool dude – hey you look good!!!!

    A good example: In a national coffee shop chain I frequent (less frequently in 2018 – one of my vows) a week ago, it took the usual long wait to get a simple bagel and coffee. At 8:30 in the morning they’re busy, five people (all appear to be teenagers just out of high school) behind the counter, two working their tails off, one yawning her head off still on another planet ( I surmise from the night before), and the other two hiding behind boxes & racks of deserts playing with their bloody “devices”

    A friend in the biz, in B.C. told me the greatest obstacle running her operation (a second generation one at that) is hiring then keeping staff (absolutely no surprise to anyone in this razor thin margins business) the door never stops revolving.

    I have zero pity for the people going broke operating most of these places, or nearly anyone going broke working in them, they all are finally succumbing to the forces of reality, you benefit by the seeds you sow, and if you don’t tend that crop it fails – PERIOD!!!!.

    What’s really killing this area of the hospitality industry though is knowing the patron of today(especially a more sophisticated one) has tons of options and they’re employing them. Some like me along with many of my friends took stock realizing a home cooked meal for half the price, no GST, no tips, is one hell of a lot more palatable than one in a strangers home where you never know from one visit to the next, what you’re eating, who is cooking it or if they are doing it correctly – there is no police in this business – at least not until some one dies!.

    I put my plan into place before the Notely government came to power so I can’t say what they’re doing helped make my decision. they are just ensuring that the restaurant business as we knew it, will never be the same, and don’t hold your breath for relief when the UCP takes over in a few months nothing will change, it may even get worse because like governments past, they’ll have the previous one to blame for what happened, and the masses will follow and believe what they’re told.

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