Peanuts for Donuts? Or Why a Living Wage is a Social Imperative

“If your business is only profitable when you pay employees below poverty wages, your business model isn’t viable.”

The quote is from a fairly direct comment I read on a friend’s Facebook post as the Tim Horton’s minimum wage controversy was generating massive publicity. On January 1, the minimum wage in Ontario, Canada jumped to $14 (from $11.60). Next January, it will take another jump to $15, bringing it closer to the $16 to $17 living wage figures in Canada’s biggest Province.

In response, a number of Tim Horton’s franchisees clawed back staff benefits like paid breaks, contributions to extended health plans, and more. One letter to ‘team members’ was circulated online, and quickly went viral. The whole episode left me asking a seemingly simple question:

Should entrepreneurs claim success if their enterprises rely on wage levels that keep their employees among the ‘working poor?’

According to the Canadian Centre for Policy Alternatives, a living wage is the hourly pay rate a family needs to earn to cover basic expenses, including food, clothing, rental housing, childcare, transportation, and minimal savings to cover illness or emergencies. (The Living Wage for Families campaign site presents a lot more data and insights.)

The same commenter cited in the opening paragraph went on to say this: “Owning a business isn’t a human right, and asking people to work for poverty wages is entitlement at its finest. Essentially, you’re asking another human being to use their life as a subsidy so you can own a business.” Is this ugly side effect of capitalism something we should simply accept?

Low wages are economically counterproductive.

Low wages are economically counterproductive. Research by LOCO BC shows that putting more money in employees’ hands increases their spending power, and that much of that spending stays in local economies, which are incredibly efficient. The more people make, the more they spend; the more they spend, the more the impact of each dollar they earn multiplies, driving economic growth. (Not that we should assume perpetual growth is inherently a good thing. There’s a lot to be said for a steady state.)

Of course, it’s not so simply solved as to say employers should just increase wages. Here’s another insightful comment: “I’ve seen operating statements of two of our well known local coffee house brands (with less than 6 stores). Beyond paying the owner/manager a good wage, the profits are negligible…. Also, our building codes make it so difficult to invest in a tenant buildout of [a] coffee shop. The washroom requirements are tens of thousands of dollars.”

It’s a paradox. Most small employers cannot unilaterally raise wages, because it’s a competitive disadvantage versus other small companies who don’t raise wages—and most small companies don’t make the margins to absorb the extra cost, so it must happen by a policy that applies to everyone. However, this approach also favours larger companies who pay lower fixed overhead costs as a proportion of revenues. Small employers are between a rock (price competition with peers) and a hard place (price competition with larger companies). It makes sense for small employers to gain a tax break of some kind so that the “minimum viable size” of a company is not raised out of reach of the small, local businesses that make up the character and community of small towns and cities across Canada.

So what’s a responsible employer to do?

Late last year, I lead a group dialogue on living wages at the B Corp Champions Retreat, the annual gathering for owners and senior managers of Certified B Corps. Here are some of the ideas that emerged from a diverse group of nearly 50 leaders:

Action starts with understanding. Could you live on a living wage?

Plan a Living Wage Challenge: As with so many things, action starts with understanding. Just one week of trying to get by on a living wage would make most leaders’ heads spin, and make their hungry stomachs rumble.

Increase Consumer Awareness of Living Wage Employers: Certifying as living wage employer broadcasts to customers that you’re paying attention. Promoting living wage policies on product hang tags, point of sale signage, menus, or other customer-facing materials you use positions you as a preferred employer.

Lobby Government for Policy Change: What can your civic or regional government do to set the conditions for, or promote, living wages? Might there be ways to tax foreign or large corporations, using those funds to subsidize smaller, local businesses? Lots of policy making starts with exploration—with ‘floating an idea.’ Consider getting into the right conversations.

Shift Your Business Model: One higher end coffee chain, JJ Bean, which has stores in Vancouver, BC and Toronto, ON, announced that it would increase BC employees’ wages to match the new Ontario minimum wage. They’re increasing prices a little to make it work. Granted, the Ontario minimum wage still isn’t nearly a living wage for Vancouverites, but it’s a smart start. It’s a start JJ Bean can make because they’ve pursued a premium business model. Instead of bargain basement, commodity pricing, they’ve built a business that delivers value in other ways. What might be your value add? And can you price it in such a way as to ensure employees earn a fair wage?

Talk to Your Peers: The more entrepreneurs adopt living wage policies, the more mainstream living wage thinking becomes, the more likely entrepreneurs will be to implement living wages. So talk about what you’re doing—including the challenges. Think together about how you might collaborate in service of better pay rates. And share your stories of success.

Overall, a living wage employer is far more likely to engage, hire, and retain good staff. And in today’s competitive markets, that alone could be the competitive advantage that drives success.

 

Mike Rowlands is President & CEO at Junxion. He’s also a B Corp Ambassador, and advocate for fair wages. 

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