Does Raising Minimum Wage Actually Lower Some Wages?

We’ve heard rumblings of a rise in the minimum wage in Ontario.  There will be considerable debate about the trade-offs between higher wages and jobs.  Its pretty clear there is a relationship but I won’t get into that discussion.  What i do think merits some attention is the policy objective for minimum wages specifically in the restaurant sector.

There are two relevant minimum wages for the restaurant sector.  There is the basic minimum wage of $10.25 per hour.  There is also the lower minimum wage for servers in licensed restaurants who earn tips – $8.90 per hour.   All servers are at this level because they earn tips.  We know that on average tips represent more than the $1.35 per hour difference in the two wages.  While there is some sharing of tips the largest portion of the tip pool stays with the servers who are, therefore, well above the minimum wage line.  Many people in kitchens make a little bit above minimum wage but well below the average of tipped employees – even if we consider their share of a tip pool. 

We know margins are tight in the restaurant business.  If labour costs go up the money needs to come from somewhere.  While we expect that prices will increase the competition in the restaurant business will likely moderate that.  An increase in the server minimum wage will likely cost kitchen staff money as there will be flexibility to moderate that cost closer to the minimum.  If he objective is to increase the wages of the lowest paid employees, this initiative, if applied equally to both minimum wage standards, could have exactly the opposite effect.  This needs to be taken into consideration as new levels are established. 

I think its admirable to try to improve the lot of the lowest paid in any industry – while I also recognize the risk relative to job losses.  I think, however, that in the restaurant business raising both minimum wages could cost jobs and also lower the wages for the lowest paid employees.  That makes no sense at all and benefits no one.