Canadian rental stores say minimum wage hikes will hurt business

Along with high electricity rates in many parts of Ontario (especially where a utility called Hydro One operates), the added impending wage cost is an issue causing stress to businesses, with rental businesses no exception.

The legislative changes in Ontario also require all employees of five years or more to receive three weeks of paid vacation. Family medical leave (to care for dying relatives) will increase from up to eight weeks to up to 27 weeks in a one-year period. All employees will be entitled to 10 personal emergency leave days per year, with at least the first two being paid.

The current Ontario government is not the first to move towards a minimum wage of $15 an hour, but the speed at which it plans to do so is unprecedented. The Alberta NDP began phasing in a similar change three years ago, with full implementation to occur by October 2018. New York and California have given much more lead time, with their implementation of a major minimum wage hike planned for 2021 and 2022 respectively.

Dan Kelly, president and CEO of The Canaidan Federation of Independent Businesses, believes that if the Liberals win the next election and $15 minimum wage proceeds, there will be big changes by 2021. In a recent CBC.ca story, Kelly predicts “youth unemployment will be up and there will be fewer opportunities for new entrants into the workforce. Retailers and the hospitality industry will find ways to automate more processes and customer service frustrations will be higher.” Other impacts of the minimum wage hike identified by various Canadian experts include the possibility that some businesses may lay off workers, be prevented from expanding or even shut down.  

Colin Wilson is the Ontario representative on the national board of the Canadian Rental Association (CRA) and co-owner at A World of Rentals in Kingston, Ont. When asked for his thoughts on the mandatory minimum wage hike, he touched base with all the Ontario board members and notes that everyone’s views are quite similar. “Here is what we feel,” he says. “This wage hike will be devastating to many of our members. The costs to employers is far higher than seen by the public. These wage hikes will increase the employer’s share of deductions and increase our costs for statutory holidays and vacations. Most of our members already pay above the minimum wage, but will be unable to increase the wages of our current employees to match the percentage increase of the minimum wage hike. How are we able to show our long-time, dedicated employees that we appreciate them when we are paying entry-level employees such a high rate?”

Wilson notes that rental businesses will be unable to compensate for the additional wage and wage-related costs through increasing rental rates, and will therefore have to find other ways to save money. “I think you will see a lot of expense cuts,” he says. “Paid lunches, sporting events, barbecues and Christmas parties will be cut back or eliminated. Fewer employees, especially summer help. Our businesses can only support so much expense, so we will have to cut hours or employees to continue to operate at a profit. Existing staff will be asked to do more, as fewer entry-level jobs are filled. Existing staff will pay the price for hiring fewer entry-level employees. These increases cannot benefit anyone.” For his part, Wilson says “I will definitely run a leaner mix of employees. My experienced staff I still have to keep over the winter, but it won’t be an option anymore for part-time or casual employees. They will be laid off.”

Beyond the wage hike, we asked Wilson about the impact of a giving employees two paid days emergency leave per year and workers of five years or more receiving three weeks of vacation. He says he has no problem with three weeks vacation, but doesn’t like being told he has to fund it. “I pay these employees all year long, including the current two weeks vacation and eight statutory holidays,” he says. “As for the emergency leave, I don’t like it being forced on me but I’m fine with it. Most of our members are independent operators who treat their employees like family anyways. If my employees need a day off and have a good reason, they will always get it.”

Paul Van Staveren, CRA Ontario chapter president and owner of Stayner Rental in Stayner, Ont., is also keen to weigh in. He asks where, when wages are already in excess of 30 per cent of operating costs, is he expected to get the money from? “Our government talks of a competitive environment,” he says. “Where are we going to find this? We, for one, will be forced to get rid of marginal, part-time and student employees. Any employee who is approaching five years of service and has absentee issues will be weeded out. The government is encouraging an environment of absenteeism and entitlement.” Van Staveren also wonders how with these impediments, do rental business owners like him encourage the next generation of family to enter their businesses. “If decisions like this where made in the private sector, the CEO would be terminated,” he concludes. “Reasonable change is expected, but these changes are unreasonable. If Kathleen Wynne feels she is helping the Ontario economy, she needs those ‘health days’ more than anyone else.”

Alberta view
The situation in Alberta is different, in that the wage hike idea was introduced when an economic downturn had already started. “The NDP weren’t voted in here, the PCs were voted out and a $15 minimum wage was part of the NDP platform,” says CRA Alberta chapter president Warren Carriere, who is also president at Alberta Construction Rentals in Calgary. “They are trying to help the lower and middle class, and I don’t think they were taking small businesses into account when they put this in place. I definitely think they should have stalled a couple of platform items like this one to keep people in the workforce. Those in the lower and middle classes won’t be able to support themselves if they don’t have jobs, and what they were getting for a wage before these hikes is better than the no job they are going to face as these hikes come into effect.” The minimum wage in Alberta was raised to $12.20 per hour in 2016 and will go to $13 this coming October, with a jump to $15 in October 2018.

Carriere says manual labour jobs have paid $17 an hour for some time in Alberta, but that when minimum $15 comes into effect, those doing manual labour (including entry-level positions in some rental businesses, washing and moving equipment etc.) are going to want at least $18 an hour. “They’re going to expect that because if they can pour coffee for $15, why break your back for a couple bucks more?” he asks. “About 60 000 people in the oil sector have been laid off in the Calgary area over the last two years, so a lot of people are looking for work, but for manual labour, you still have to pay more.”

Carriere thinks party rental businesses might be able to increase their prices to deal with added wage costs, but says that due to fewer projects and competition with excessive inventories, businesses like his have had to stay competitive. “Rental rates have already dropped significantly at the same time there’s been an economic downturn out here,” he says. “I think in general terms to save money, company parties are being reduced if they are occurring at all. I think expectations of employees will probably be higher for the same pay. Seasonal employees won’t be hired any sooner than they need to be and will laid off as soon as they can be. I think there’s also going to be an obligation towards and expectation from those employees who make between $15 and $20. They’re going to feel like they should also get a wage increase. That’s my guess.”

Wilson in Ontario agrees. “Entry-level employees will only be used when they are absolutely needed and will be laid off after peak season,” he says. “The increase in wages will increase the costs of all items in Ontario, not just rental equipment, pushing the Consumer Price Index and increasing inflation in Ontario. As this happens, the value of the income for higher-paid employees decreases, hurting everyone.”

He characterizes the minimum wage hike in Ontario as an absolute election ploy by the Kathleen Wynne government. “The small number of votes they will lose from employers,” he says, “versus the large number of votes they could receive from minimum wage employees can only benefit them.”

What the economists say
International economists are divided on the impact of minimum wage increases. In general, the impact of modest increases on businesses appears to be slight, though related increases in unemployment can be measurable. The effect of increases as severe as those contemplated in Alberta and Ontario, however, are less certain. A Harvard study of  restaurants in American jurisdictions that raised the minimum wage (cited in The Economist, “Higher minimum wages may make bad restaurants close,” April 29, 2017) appeared to show that restaurants offering lower quality food and service were more likely to go out of business when minimum wages went up, but higher rated restaurants were less affected. This would seem to make sense, since presumably lower- quality establishments have to accept lower margins to stay in business in the first place. If true, that means raising the minimum wage actually decreases employment opportunities for low-wage workers – the opposite of the desired effect. Another article looking at minimum wage increases in the U.K. (“A 10-pound minimum wage is not the best way to help low earners,” The Economist, April 27, 2017) suggests that since individuals making minimum wage are usually not the primary wage-earners in a household, and since many of the poorest people do not work at all, the effect of minimum wage increases is mainly to benefit middle-income families with the poor suffering from the decrease in hours and employment opportunities. Again, the opposite of the desired effect.