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Inflation it is

by Dave Adsett

News this past week that Premier Kathleen Wynne’s Liberals are proposing changes to Ontario’s labour and employment laws raised a cacophony of opinions across the province.

Whether the debate was about increases in vacation weeks or sick days available to employees or raising the minimum wage to $15 in 18 months, there were plenty of talking points.

We have been curious since the great recession of 2008 how governments would eventually deal with anemic growth and stagnant wages.

The first time we started seeing a picture develop of what governments could or might do was at the Newseum in Washington DC in 2013. At that venue newspapers from every state in the U.S. and Canada are shown on a daily basis.

In minutes we scanned one end of the museum to the other and saw a trend emerging, and it all centred around increasing the minimum wage roughly 30%.

While perhaps an incorrect economic maxim or definition, we viewed the increased minimum wage concept as little more than a mechanism to force inflation and get the economy growing.

New York and San Francisco were cited in the Ontario’s announcement as examples of progressive cities that have or will adopt a $15 per hour minimum wage. Ontario for its place in this scheme becomes just another domino in the race to raise wages and increase disposable incomes across North America.

This large-city solution being foisted on the whole of Ontario creates a problem for smaller communities where $15 might currently be a decent wage.

This province is so big and the salary realities by region are so different, this increase will have a huge impact on small town Ontario already struggling to keep local businesses operating.

The trouble with inflation is once it starts it isn’t easily stopped and often it’s only slowed down by an increase to interest rates. Most readers will understand our trepidation with government performing what amounts to a juggling act between rising wages, a (hopefully) growing economy and keeping interest rates stable. That takes skill and we haven’t seen any evidence that this government can handle such a precarious undertaking.

It should not be forgotten either, that the party proposing this increase has been in power for nearly 14 years, during which time hydro rates and deficit spending has soared.

Little effort, if any, was applied to keeping costs down or ensuring affordability for the most vulnerable. Instead, at the eleventh hour, in what many political prognosticators and Queen’s Park insiders have suggested is merely a bold-faced vote-buying exercise for a new demographic, the premier has offered up goodies on the backs of business.

Wynne’s fingers are crossed hoping companies currently making a profit will continue to be profitable. An added benefit to the plan, left out of the briefing notes on announcement day, was the government will collect more tax from these higher-paid employees than it did from the corporation posting a profit (some 7% more will be collected, according to our accounting people).

Of course all businesses aren’t created equal.

Those operations without a component of low-skilled labour (a term we abhor) may well find themselves less comfy in the not too distant future. It has already started in fact, with shop floor workers decrying their current $15 rate, since that is what fast-food workers will soon be earning. They want more, and so begins the race to inflate and the scramble by businesses to make the math work.

One of the greatest challenges facing business today is to generate margin, in an era where the squeeze is on for every nickel – whether that be in automotive, small-town retail or the printing business.

This 18 month phase-in will be a period of disruption like few have seen, certainly in a generation.

Perhaps the only truth to be found in this debate is the pushers of the plan obviously aren’t business people – and maybe that’s not all bad. The juggernaut of stagnant wages, particularly at the lower end of the pay scale, had to change and few in industry, unless forced, would ever make the move.

We just fear it’s too much, too quick. It’s a gamble that could prove costly for the very people viewing it as a windfall.

 

June 9, 2017

 
 

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