January 14, 2018

FEELING FOOLISH:

How economic theory explains the Tim Hortons wage debate (MICHAEL FARREN, 1/10/18, THE GLOBE AND MAIL)

Over the past few months, the minimum wage has risen in nearly every province, with Ontario's 23 per cent increase since September - up to $14 per hour - the largest. Now the controversy surrounding the changes has resurfaced, thanks to a number of Tim Hortons franchises telling employees they will cut benefits in response.

Many have condemned the franchise owners for putting profit before employee welfare. However, we should not be the least bit surprised: Economic theory predicts this exact result when the government mandates a wage increase.

Economists call it the "law of demand." As the price of something rises, the quantity demanded tends to fall. And much like the law of gravity, the higher you go, the harder you hit the ground.

Most of the time, the minimum wage's effect is hard to see. It's usually hidden in shorter employee hours and increased workloads, price increases and cost-cutting by reducing the quality of service provided. In this case, however, the company that owns Tim Hortons limits franchise owners' ability to raise prices and hasn't lowered the cost of the supplies that franchises have to purchase.

So instead, franchisees' short-term alternative is to push down labour costs.

Was I the only one who assumed the point of the $15 minimum wage campaign was to force the replacement of human labor by machines and, thereby, drive higher productivity and profits?  It's a simple matter of taxing what you don't want.

Posted by at January 14, 2018 10:17 AM

  

« HE'S NOT ONLY BRAGGED ABOUT OBSTRUCTING...: | Main | THE UNSUSTAINABLE WILL NOT BE SUSTAINED: »