How does the minimum wage increase affect employers and employees?

Need to know:

Workers currently earning minimum wage may be eagerly anticipating a $2.60 increase in their hourly pay, starting in, 2018, but the wage hike may come at a cost they didn’t expect.

Nita Chhinzer, a professor of leadership and organizational management, studies how downsizing is implemented in different industries. She says the minimum wage increase may result in more layoffs, and those who manage to keep their jobs may be faced with bigger workloads.

One of her research projects looks at the effects of the minimum wage increase on the accommodation industry, which typically employs a large number of minimum wage workers.

Transcript

“It’s an affordability issue” for employers, says Chhinzer of the minimum wage hike, pointing out that the minimum wage was $6.40 in 2004 and will more than double by 2018. “It’s the largest jump in Ontario’s history of minimum wage jumps,” and workers may be expected to significantly increase their workloads as a result.

Chhinzer gives the example of an unnamed hotel that required its housekeeping staff to increase the number of rooms they cleaned from eight to 11 per day. “What happens there is the rooms don’t get cleaned as much, and your customer rating and satisfaction scores go down.” The cleaning staff also get overworked, she adds.   

Chhinzer advises employers against forcing their staff to do more work in the same amount of time, which can cause their quality of work to suffer.

Instead, she recommends assigning housekeeping staff to work on the same floors and perform tasks that match their skillset to boost productivity. Simplifying tasks by replacing triple sheets on beds with a single sheet can also help reduce the workload for housekeeping staff. Passing the extra cost of the higher minimum wage onto consumers would help employers afford higher minimum wages, but it would only work if it’s implemented industry-wide, she adds.

Chhinzer also studies how downsizing is implemented in different sectors.

Some industries are more prone to layoffs and unstable employment, she explains, citing manufacturing, wholesale and retail as examples. Given the number of massive layoffs that have recently occurred in these industries, their remaining employees face a higher risk of being terminated without cause.

Manufacturing accounts for 13 percent of GDP, yet accounts for 38 percent of mass layoffs, whereas the finance and insurance industries account for 24 percent of GDP and only two percent of mass layoffs. “Again, we’re seeing industry-specific differences,” says Chhinzer.

Fewer layoffs in finance, insurance and professional services may be due to lower rates of unionization in these sectors, “so they’re more likely to terminate them based on poor performance than lay them off,” she adds. High rates of unionization in the manufacturing sector make it more difficult to terminate employees.

The amount of notice employees receive before a layoff also varies by industry. “Industries with the lowest notice for downsizing are the finance and insurance industries, where they give 19.6 days on average as notice; the rest is payment in lieu of notice,” says Chhinzer. The industries that give the most notice are wholesale and retail (59.7 days on average), she adds, and business and professional services (55.1 days on average).

“Finance and insurance companies are more likely to give payment in lieu and terminate employees immediately,” she says. Other industries, such as wholesale, retail, business and professional services expect laid-off employees to continue working during their notice period.

“The outcome of this research suggests that we have to think about layoffs within an industry and think about the norms, rules and regulations that are among relevant firms within that industry,” says Chhinzer. “That often appears to be guiding what is considered acceptable and not acceptable.”

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