Minimum Wage and Newfoundland and Labrador's Foodservice Industry
Total Page:16
File Type:pdf, Size:1020Kb
Minimum Wage and November 2019 By Luc Erjavec, Vice President, Atlantic Newfoundland and Canada Labrador’s Foodservice Industry Newfoundland and Labrador’s Restaurant Industry Number of Commercial Foodservice Establishments Drinking • $1.1 billion in sales Places (Commercial + non-commercial) 199 Full-service Restaurants 414 Caterers • 1,168 117 establishments Quick- service Restaurants 440 Source: Restaurants Canada and Statistics Canada One of Newfoundland and Labrador’s Largest Employers 2018 Private Sector Employment by Industry . 16,500 Retail trade 31,700 direct jobs Construction 20,100 Restaurants 16,500 Transportation and warehousing 11,900 . 7.3% of the Manufacturing 9,000 province’s Mining, quarrying, and oil and gas… 8,100 Wholesale trade 5,700 workforce Finance and insurance 5,000 Fishing, hunting and trapping 3,500 . 5,100 Utilities 3,100 Real estate and rental and leasing 2,300 youth jobs Agriculture 1,600 Forestry and logging and support… 900 Source: Restaurants Canada and Statistics Canada Top Issues Impacting Restaurants Labour costs remain the biggest issue having a negative impact on foodservice operators. Labour costs 80% Food costs 62% Labour shortages 59% Weak economy 38% Utility costs 38% Credit card merchant fees 36% Red tape 26% Liquor costs 25% Competition from new restaurants 23% Bad weather 19% Carbon tax 18% Decline in tourists 12% None of the above 0% Q: What factors, if any, are currently having a negative impact on your foodservice business? (Please select all that apply.) Source: Restaurant Outlook Survey – Q3 2019 Total Sales Newfoundland and Labrador (year-over-year nominal change) 9.6% 9.1% 7.8% 7.8% 5.9% 6.1% 5.5% 5.6% 4.2% 4.6% 3.3% 2.3% 2.2% 2.4% 1.0% 0.3% 0.3% -0.4% -0.4% -7.9% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19P Source: Restaurants Canada and Statistics Canada NL has underperformed from 2015 to 2019 in the foodservice industry Average Annual Growth Rate of Nominal Commercial Sales by Province British Columbia 7.3% Prince Edward Island 7.2% Ontario 6.0% Quebec 5.8% Canada 5.3% New Brunswick 5.0% Manitoba 5.0% Nova Scotia 4.6% Saskatchewan 1.9% Alberta 1.8% Newfoundland and Labrador 1.3% Source: Restaurants Canada and Statistics Canada Profit Margins on Newfoundland and Labrador $3.47 $3.42 $2.70 0.41¢ The average restaurant has a pretax profit of just $30,229 NL Profit Margins are Low – Particularly in Licensed Sector NL Profit Margin by Sector (2017) 4.10% 3.30% 3.10% All Restaurants Full Service Drinking Establishments Source: Restaurants Canada and Statistics Canada Minimum Wage Increases Outpace Inflation Newfoundland & Labrador (October 2007 – September 2019) 48.7% 22.0% Minimum Wage Inflation Source: Statistics Canada and Restaurants Canada Results of Rapid Minimum Wage Increases . Minimal impact on poverty – blunt anti-poverty tool – Most Newfoundlanders in poverty do not work – Vast majority of MW workers are youth and teenagers – Vast majority of MW workers work part time . Most vulnerable employees are first to lose jobs – 10% wage increase leads to 1-3% employment reduction in low skill employees – 10% wage increase leads to a 3-6% decrease in youth employment . Restaurant Impacts – Back of house employees, who are most difficult to attract, are not receiving the wages they deserve thereby increasing turnover – Higher menu prices for customers – Automation – Self-serve – Pre-prepared food purchased in bulk – Employers less willing to take a chance on a marginal employee – Less investment returned to business – Reduction in operating hours – Poor service – Closure Minimum Wage and the Foodservice Industry • A 50-cent increase costs the foodservice industry $10.6 million. • These increases have a ratcheting effecting on most foodservice wages and would an additional $9,500 in annual payroll costs for the average operator. Wage Increase Experience Large Minimum Wage Increases in Alberta and Ontario Have Negatively Impacted Restaurant Industry Real Change in Foodservice Sales 2018 over 2017 Prince Edward Island 4.2% British Columbia 3.5% Quebec 3.1% Canada 0.8% New Brunswick 0.5% Manitoba 0.5% Nova Scotia 0.2% Ontario -0.3% Saskatchewan -0.5% Alberta -1.8% Newfoundland & Labrador -3.1% Source: Restaurants Canada and Statistics Canada Large Minimum Wage Increases in Alberta and Ontario Have Negatively Impacted Restaurant Industry Menu prices: Menu prices increased relatively to the growth in the minimum wage. Roughly speaking, every 10% increase in the minimum wage corresponds to a 3% increase in menu prices. Everyone will pay more! Employment: Lost jobs - job loss lags inflationary impacts but it is real and generally impacts the least skilled and most vulnerable employees. Ontario – 2.1% decline or 9400 jobs Alberta – 4.9% or 7,200 lost jobs Job loss impact in Newfoundland and Labrador would be harsher due to underperforming economy Source: Restaurants Canada and Statistics Canada Academic Research is Clear Increasing Minimum Wage does not reduce poverty Increasing minimum wage negatively impacts youth employment Morley Gunderson Sen, Rybczynski and Van De Waal Burkhauser and Sabia Finegan Addison and Blackburn Neumark and Wacher Campolieti Source: Restaurants Canada and Statistics Canada Restaurants Canada Recommendations #1: Timing and setting of Minimum Wage Increases . Restaurants Canada supports Atlantic approach of April 1st implementation dates. Any future increase should be based on objective economic indicator such as Consumer Price Increase (CPI) – Incremental, transparent, predictable and depoliticized . Attempting to link to a poverty measure is not practical – Tenuous linkage between minimum wage and poverty – Poverty is a family measure, minimum wage is individual . A cap should be introduced to protect businesses during periods of high inflation or low economic activity periods . As an offset wage should not be reduced during periods of deflation #2: Liquor Server Wage • A Liquor Server Wage is a lower minimum wage for those who serve beverage alcohol. – Recognizes the significant income earned from tips – Put in place be freezing rate for servers at current rate. – No ones wage is rolled back – Current difference between general wage and liquor server wage: – Quebec - $2.20 – Ontario - $1.80 – BC - $1.25 – AB considering introduction – Maine - $5.00 • Protection can be put in place to ensure nobody earns less than minimum wage. Canadian Tip Research . University of Guelph Hospitality and Tourism Management* – Estimation of tips from Canadian bars and restaurants is $4 billion. – “To a large degree, tips are a predictable revenue stream associated with restaurant operations.” – “Tips do not seem to vary by service quality in restaurants and are largely given because of social norms.” – “The average tip percentage left by restaurant patrons has increased to between 15 and 20 percent.” – “In the vast majority of cases, for servers receiving gratuities, the actual hourly wage is less than 50% of the hourly compensation and can be as little as 25 to 30%.” – “It is relatively clear that increases in wage costs for all workers have constrained growth in wages for non-tipped workers.” – We noted earlier that average gratuities are also increasing in which servers have experienced the most significant growth in remuneration in restaurants, often making two to three times more than staff in the kitchen.” * Mike von Massow and Bruce McAdams(2011) The Tipping Point: Is There a Fair Share?, University of Guelph Sustainable Restaurant Project Canadian Tip Research . 2018 Report by payment process Square – Average tip in Newfoundland and Labrador - 14.3% – Average tip in St. John’s - 14.7% . BMO of Montreal – 2007 Mosaik Mastercard survey found that 78% of Canadians tip 15% or more in restaurants . Government of Ontario – After tip sharing, hourly wage accounts for 49% of hourly income for liquor servers.* *Ministry of Labour(1993), Study of Tipping Practices in Licensed Establishments in Ontario #3: Introduce a Training Wage • A lower wage for inexperienced workers – Recognize the high cost of training inexperienced workers – Same principle as an apprentice wage – Youth unemployment rate is higher than the adult rate – Put in place by freezing inexperienced workers at current rate – No ones wages would be rolled back – Currently in place in AB - $2.00, NS - $0.50 , ON - $0.85 #4: Wage increase alternative • Research clearly indicates that the best way to help the working poor is through the tax system • Restaurants Canada recommends increasing the Basic Personal Tax Exemption • To lessen impact on government revenues, a progressive approach such as Nova Scotia could be used • Reducing poverty requires a complex, long-term, multi pronged approach • There is not a simple feel good solution such as large increases to the minimum wage • Having more than one minimum wage is common practice-recognizes the realities of the marketplace. • Majority of liquor server wages comes from gratuities • The is a cost to train inexperienced employees • Seven provinces allow for more than one minimum wage..