When minimum wage hikes make no sense

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My 19-year-old daughter, who is back home from the University of Victoria until September, has found a summer job as a hostess at a well known B.C. restaurant a couple of blocks from our house. She’ll be working four- to six-hour shifts, three or four days a week.

She’ll get minimum wage, which was $8 an hour until April 30, when it went up to $8.75 an hour. But she expects to move into waitressing, where she can make far more money from tips.

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A good chunk of my legal practise involves work for restaurants and hotels, and I have fielded more than a few calls from angry clients bemoaning what will be, by this time next year, a 28-per-cent increase to the province’s minimum wage. B.C. has had the lowest rate in Canada for most of the past decade, and even at $8.75 an hour, it’s still the lowest in the country. In a year, it will be increased to $10.25 an hour.

Minimum wage is a tricky issue to discuss rationally in public – it's hard to defend paying someone the lowest amount legally possible without getting angry letters to the editor or threats to your personal safety. But in a perfect world, nobody would ever have to pay the minimum wage because no-one would ever work for it. In Alberta during the boom years, retail businesses closed down because they couldn’t find anyone prepared to work for $8.80 an hour when they could make 10 times that amount in the oil patch.

My restaurant clients tell me the increase in B.C. is unfair because many of their workers aren’t there for the minimum wage, they're there for the tips. So why increase it holus bolus for an industry where many workers are, in effect, getting bonuses directly from customers?

They have a good point.

I recall in the early '80s, when I was putting myself through law school working at The Keg, I didn't care about the $3.25 an hour I made waiting tables. I was in it for the $100 to $150 I could make every night in tips. The minimum wage was so irrelevant, some servers had to be reminded that two months' worth of their paycheques were patiently waiting to be picked up in the office.

Thirty years later, my daughter isn’t making the $100 to $150 a night her dad used to make, but she, like other non-serving restaurant workers, benefits from tip pools even though she doesn’t get money directly from customers. Factoring that in, her wage increases by about an extra $1 an hour. For other restaurant workers, it can be more.

All restaurant systems that I do legal work for have some form of “collective tip pool” requiring servers (who collect the cash and the tip) to contribute a percentage of their sales to the “pool” for distribution down the line to the non-serving (and thus non-cash-collecting) staff. This includes cooks, bussers, bartenders, hosts, dishwashers, and others who may have made the evening just as rewarding for customers (and just as important to the success of the restaurant) as the servers.

I recently read a report by the Fraser Institute on increases to the minimum wage. The Fraser Institute is accused of being a “right-wing” think tank almost as much as the Centre for Policy Alternatives is accused of being a “left-wing” one. But just because a right-wing think tank collected some interesting data and made some provocative conclusions doesn’t mean the report should be dismissed as propaganda.

The data is revealing. And after all, data is data, irrespective of one’s ideological leanings. The findings surprised me.

The study found that in 2010, only 40,800 B.C. workers earned minimum wage, and this represented a mere 2.2 per cent of the province’s total work force. Moreover, 58.6 per cent of minimum wage workers in BC were between the ages of 15 and 24, and only 3.5 per cent of workers aged 20 to 24 earned minimum wage.

The majority of minimum-wage earners were not adults trying to support their families, they were teenagers and early twentysomethings living with their parents. Of the 40,800 workers earning minimum wage, 22,700 – or 55.6 per cent – lived at home with their families, and of those workers, half (55.5 per cent) were aged 15 to 24 and attending school. So an increase to the minimum wage, the authors claim, benefits a majority of people who are less likely to need it.

Most minimum wage jobs are entry-level but not dead-end ones, they said, because they give young people the skills (and perhaps the motivation) to get better paying jobs, either within the company they work for, or with another employer. “A vast majority of minimum wage earners are not trapped in low income jobs year after year,” the study reads. “Minimum wage work is largely a temporary experience. In fact, most minimum wage earners see their incomes rise in a relatively short time.”

The authors examined a number of Canadian and U.S. studies and concluded that a 10-per-cent increase in the minimum wage will decrease employment among young workers (those aged 15 to 24) by 3 per cent to 6 per cent, and for those workers earning between the old and new minimum wages, workers will experience employment losses of 4.5 per cent to 20 per cent.

Increases to the minimum wage, they say, reduce opportunities for low-skilled workers and young adults to enter the work force, gain experience, and move up the income ladder. The authors estimate that an increase in BC’s minimum wage to $10.25 an hour could lead to between 9,391 and 41,738 lost jobs – and even more for those between 15 and 24.

I would argue the decision to raise the minimum wage was political, not economic. Had the governing B.C. Liberals under new Premier Christy Clark not raised it, the opposition New Democrats would have made it an election issue, and if they formed the government, minimum wage would have gone up within two milliseconds of a victory. The decision to raise it so soon after Ms. Clark’s leadership victory was a decision calculated to set a “family friendly” tone and, of course, remove the issue from the arsenal of the opposition in time for the next election.

Although I have real doubts about the Fraser Institute’s conclusion that 41,000 jobs could be lost by an increase, I understand the political decision. As Bismark is reputed to have said: “Laws are like sausages. It is better not to see them being made.”

Regardless of politics, the B.C. government has made a goofy policy mistake on this file that is discriminatory to the restaurant industry. Why raise the minimum wage at all for servers when tips are an expected part of the compensation formula? And if hosts, dishwashers, bussers and cooks participate in tip pools that raise their wages by $1 or more an hour, why raise minimum wage as much for these employees?

I can understand the case for an increase in industries where employees aren’t tipped, but where a tip is normally expected and normally paid - even through a pool - a large increase is far less justifiable.

The minimum wage will increase in B.C. to $10.25 an hour within a year for everyone except those who serve alcohol, where it will rise more gradually and cap out at $9 an hour.

What if your restaurant only serves breakfast or it is otherwise not licensed to serve alcohol? You’ll still have to pay your servers the top rate of $10.25 an hour even though they get tipped the way all servers do.

So maybe the law of unintended consequences will kick in and all those non-licensed breakfast restaurants will start getting liquor licenses so they can fall within that exemption and pay their servers the lower wage. Or maybe restaurants will make all their minimum wage earners “liquor servers” to fall within the exemption, and your drink orders will be taken or delivered by any number of staff members including hosts, line cooks and dishwashers.

The restaurant industry is an important sector of the provincial economy, and hiking the minimum wage in the manner the B.C. government has done for workers who receive tips is poorly thought out. Maybe the people who came up with this policy should have spent more of their youth working in the restaurant business.

Tony Wilson is a franchise and intellectual property lawyer at Boughton in Vancouver, and he is an adjunct professor at Simon Fraser University. His newest book, Manage Your Online Reputation, was published in November.

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