The 21 percent increase in the minimum wage that went into effect here in Ontario at the start of the year is generating lots of news coverage. The biggest scandal so far has involved the ubiquitous Tim Hortons "coffee" chain. Some of the company's franchisees (including Tim Horton's own daughter) immediately cancelled their staff's paid lunch breaks and curbed medical benefits; some even went so far as to deny staff members the dubious benefit of a free cup of joe as they were going off shift. This has led to calls for "Tim-free Tuesdays" to put pressure on the company; I'd join in, but as you may be able to judge, my preference is for a Tim-free year anyway.
Here in Niagara we've seen an odder and, I suspect, unforeseen consequence of the wage increase. Garbage collection in the region was privatized years ago, and until this past fall had been working satisfactorily. Then things started to go wrong, with collections delayed or missed entirely. The contractor blamed various factors, including the weather (too warm in the fall, too cold in late December) and wear and tear on the aging truck fleet.
This week, however, a new factor was suggested. The contractor pays its people more than the new minimum wage (C$14/hour), but the increase in the minimum has prompted a significant number of workers to conclude that they can live just fine on that wage if they can trade in the joys of toting garbage in the frigid temperatures for some -- any -- inside gig*. At Tim Hortons, maybe?
It took me some time to come up with an economics-based rationale for this behavior, but then I remembered the term "satisficing", which I haven't heard since my undergrad days. Much of economics assumes people or firms are trying to maximize income, but satisficing (a term from behavioral science) attempts to achieve some acceptable minimum level of income, not necessarily the maximum. Our satisficing garbage collector could earn more by staying on the truck, but is happy to take the newly-boosted minimum wage if he can stay indoors.
Without knowing of further examples such as this, it is difficult to assess the overall economic impact. However, it is hard to imagine that our local trashmen are the only people to have figured this out. If such behavior is in fact widespread, the impact of the higher minimum wage may be much stronger than the Provincial government is expecting.
If companies like our garbage contractor are unable to attract the employees they need, they will have little choice but to boost wages. That will rapidly translate into higher property taxes across Niagara Region. And if this sort of thing is in fact happening in other locales and in other relatively well-paid but unpleasant professions, then estimates that the higher minimum wage will add just 0.1 percent to inflation and cut just 0.1 percent from GDP may prove to be underestimates.
Ontario politicians are airily dismissing business sector complaints about the new minimum, saying that companies should just raise their prices by a few pennies. If this just happens in places like Tim Horton's, that's one thing, but if it turns out that costs and prices are being pushed higher in the broader economy, Bank of Canada Governor Stephen Poloz may well be forced to react. At the moment the higher minimum wage has broad popular support, but that may not last if voters start to feel a squeeze on their pocketbooks.
* It's hard to blame them. Last week our garbage was picked up two hours after dark, from a street that could have doubled as a hockey rink, in temperatures close to minus 20 Celsius.
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