Analysis

Business is the reluctant hero in the minimum wage transition: Don Pittis

Voices claiming to represent business cry foul on wage hikes. But just watch how quickly capitalism adapts.

Some are angry and grudging, but part of the brilliance of capitalism is its ability to deal with change

The lowest possible wages aren't necessarily the best business strategy as many companies, including Lee Valley Tools, have shown. (Image Source: leevalley.com)

We don't give business enough credit.

And sometimes it seems the lowest expectations for the ability of capitalism to adjust to changes like the rise in minimum wage come from those who claim to speak for business.

In a recent panel discussion on the CBC, C.D. Howe Institute president Bill Robson suggested that instead of raising the minimum wage, governments should use tax money to top up low wages, allowing businesses to continue employing just as many workers. That idea would horrify a lot of pro-market economists.

But Robson had another important point. 

"I really don't like this business of creating a problem for businesses and then vilifying them," Robson said. "Sure, they're having trouble reacting. If you pay a lot of minimum wage jobs you're sort of on your back foot anyway, but the whole tone of this is terrible."

Reluctant superheroes

In the battle over minimum wage, one side has made business the victim, the other has made it the villain. Both have it wrong. Neither side is giving business credit for its superpower. Business should be seen in its true role as the reluctant hero.

The genius of business, as part of the capitalist system that makes Canada wealthy, is finding strategies to maximize profit in the face of constant change.

Even at the old minimum wage, companies wanted to use as little labour as possible. Cutting jobs, including at Tim Hortons, has always been one business strategy for increasing profit.

It is by no means clear that a cheaper minimum wage would make them use more labour. How much more bread would you eat if it was 20 per cent cheaper? 

While cheap labour is one component of business success, most businesses will tell you it is far from the most important.
When businesses go broke, bad management rather than the high cost of labour is often what prevented the failed company from beating the competition.

The giant retailer Sears is not closing its stores because labour is too dear. Nor is the global construction giant Carillion going broke because of high minimum wages.

The most common reason for a company's failure is bad management, and the evidence of that is that some businesses fizzle while their direct competitors prosper in the same market. The constant challenge for managers is choosing the right strategy for constantly changing times.

As University of British Columbia labour economist David Green has pointed out, many companies do well by adopting a high wage strategy. The examples he offers are the restaurant chain White Spot and the up-market hardware retailer Lee Valley Tools.

High wages, not high prices

Costco is well known for paying above minimum wage, part of a strategy of telling employees it values them as people and workers. It just seems natural that the loyalty it offers its employees is returned, leading to better trained staff, low turnover and thus lower costs.

Keeping employees happy is one well-known strategy for business success. Even more important is keeping customers happy, including making them think you are a good employer.

Ironically, before the public relations disaster that was its reaction to the minimum wage hike, the Tim Hortons franchise owners in Cobourg, Ont., had been striving for good employee relations, offering paid breaks and benefits.
Despite a B.C. minimum wage of $11.60, coffee chain JJ Bean decided to give its Vancouver employees a wage increase up to the Ontario level of $14. (Tina Lovgreen/CBC)

Creating and running a business is not easy. It is never static. Costs outside the business owners' control are always changing.

In many Canadian cities, soaring property rents have been a far larger challenge than labour costs. 

The changing value of the Canadian dollar has been a constant burden, for many retailers more significant than the cost of staff.

Darwinian selection

You might have thought a crash in the price of an industry's main product by more than 50 per cent, like the oil and gas industry suffered, would have led to total destruction. Not so, as oil and gas companies found a hundred ways to cut costs and survive. Even people in the business were surprised. By comparison, Alberta's rise in minimum wage seems irrelevant to the industry.

The amazing thing is that in the face of constant change, businesses survive at all. And yet they do. 

Not all do, of course, just the best ones, which is the ultimate Darwinian process of competitive selection. 

Amazon is constantly nipping at the heels of Walmart. Canadian Target and Zellers just didn't make it. The restaurant at the corner is in mortal combat with the one down the street. Businesses are constantly going out of business.

The ones that are quickest on their feet and the ones best able to cope with constant change are the ones that survive.

With minimum wage hikes coming across the country, we as a society have decided that the true cost of Canadian labour is the price where Canadian workers can live a minimum decent Canadian lifestyle. 

Those businesses that cannot figure out how to do it will go broke or go away.

The business heroes, the ones that do figure it out, by installing technology, by increasing efficiency, by creating a better product with better service that you're willing to pay a little more for, will get the customers of those that fail.

Follow Don on Twitter @don_pittis

More analysis from Don Pittis