Tim Hortons, Ontario’s Minimum Wage, and the Need for Demand-Side Economics

'Wages' written in concrete supporting community services, government, business, and other economic factors.

By Christo Aivalis

On January 1st of this year, the Ontario government instituted a minimum wage increase to fourteen dollars an hour, with a pledge to increase it to fifteen dollars by January 2019. While 60% of Ontarians support the increase, numerous businesses have retaliated against their workers by retracting things like benefits and paid breaks. Many examples have come from the franchised fast-food sector, specifically Tim Hortons, where numerous branches—most of which are not owned directly by Tim Hortons itself, but by individual investors—have engaged in actions against their workers meant to cover costs of the new minimum wage. This has led to severe backlash on social media, with many people saying that Tim Hortons’ desire to be seen as an integral part of Canadian culture clashes with what Ontario’s premier called the bullying of low-wage workers.

But the issue goes beyond Tim Hortons’ public relations nightmare and the associated online anger. This story is important because even though much of the media coverage has focused on how the policy would hurt ‘mom and pop’ businesses, we are now seeing just how vindictive many employers are, and how their workers—almost exclusively un-unionized—can have their benefits taken away so autocratically. Beyond this, the bigger picture may be that the popularity of the minimum wage increase, when combined with a disdain for high-profile employer retaliations, might well increase public support for a form of demand-side economics in lieu of the supply-side economics that has dominated western society since at least the mid-1970s

For the first century or so of capitalism, there was a dogmatic assertion that the free market was the best method of both producing and distributing goods and services. In this light, the belief was that any sort of regulation on the capitalist or their entreprise caused distortions in the elegant balance of the invisible hand. It was thus the case that labour reforms such as unionization, minimum wages, health and safety provisions, and child labour restrictions were all opposed by employers, and resisted by governments only until such time that they faced pressure from workers and left-wing political movements.

A big change started to emerge in the early 20th century. Increasingly, labour activists and progressive economists increasingly articulated a problem they described as underconsumption: namely the idea that wages and benefits were so meagre for the working masses that they could not afford to absorb the mountains of goods being produced. Still, most capitalists and governments held firm to the classical way of thinking, and pushed forward with a low-wage economy. But when the Great Depression hit in 1929, one of the more common explanations from labour activists was based in underconsumptionist thought: that poorly paid and precariously-employed workers led to the bottoming out of aggregate demand. The Depression taught people that even if an individual businessperson was acting rationally in terms of their self-interest, the aggregate effects would harm the economy without intervention.

If put somewhat simplistically, the postwar economic order was based at least in part on preventing another bout of underconsumption. By ensuring more workers had stable paycheques and decent social benefits, economic fluctuations wouldn’t leave the majority of people without the means to absorb production. Through increased unionization, improved labour standards, new social programmes, and Keynesian approaches to economic cycles, the economy benefitted from a strong consumer base into the mid-1960s.

This is when another turning point began to emerge, if only gradually. Due to the rise of developing nations, the increase in commodity prices, stagnating corporate profitability, and the rising expense of social spending, class conflict became re-intensified. While many in this period turned to more stridently-socialist objectives to address economic crises, others suggested at least a partial return to the economic wisdom of the pre-Depression era. Specifically, this supply-side approach—often termed trickle-down economics—successfully reignited the belief that if government lowered regulations upon capitalists, it would lead to an increase in total wealth, which while coalescing among the wealthy in the short term, would find its way into the pockets of working people as more and better jobs were created. This approach led—from the mid-1970s onward—to the gradual deregulation of labour markets, decline of private-sector unions, and the stagnation of minimum wages.

And while western societies have seen pretty robust increases in wealth since these supply-side transitions, it has not been shared equally. Since the 1970s, wages have grown only modestly, while labour productivity—and the benefits employers have derived from that productivity—have risen much faster. We find ourselves in a situation in which Canada is as wealthy as it’s ever been, and yet many workers struggle with precarity, low wages, and inadequate benefits; sometimes all three simultaneously. This is where a new push for demand-side economics is gaining steam. Even some capitalists, like Nick Hanauer, have made the case that it isn’t tax cuts, lower wages, and less regulation that leads him to hire more workers. Rather, it is strong consumer demand that will drive his business towards hiring. In his words: “an ordinary consumer is more of a job creator than a capitalist like me.” He and many others have made the case that when a low-wage worker is given a raise, it manifests in increased and consumer spending that benefits their local economy.

This is where social movements like the Fight for 15 combine social justice with the rationale for a more stable economic order. Not only is it a worthy moral cause to ensure that every worker earns a decent wage, but it is good economic and fiscal policy. Indeed, not only are lowly-paid workers unable to absorb their share of consumer goods, but in some cases are effectively subsidizing capitalists’ profits through their need to subsist off social assistance. Reports from the United States have shown that low wages from both Wal-Mart and fast food outlets have cost the public over 10 billion dollars annually as their poorly-paid staff require aid to survive.

But beyond the minimum wage itself, a re-focus on spurring demand is needed in how we handle other economic questions. How, for instance, will young workers facing lower pay, weaker benefits, and higher precarity be able to support families, plan retirements, and afford the homes so many baby boomers have staked their own retirement plans on? In the 40-year drive to lift the economy by taking care of capital first, these questions have largely gone unanswered.

Ultimately, my opinion is that demand-side economics alone won’t solve many or even most of capitalism’s core flaws that are rooted in its profit-driven and anti-democratic tendencies. Nevertheless, a lens that hones in on how stability for working people is essential to robust economic spending is one that can lead—as it did in the past—to positive reforms, a more egalitarian society, and a better quality of life for all those currently working in places like Tim Hortons.

Christo Aivalis is an Editor of Active History, and a SSHRC Postdoctoral Fellow in the Department of History at the University of Toronto. His dissertation examined Pierre Trudeau’s relationship with organized labour and the CCF-NDP, and is being published with UBC Press in March 2018. His work has appeared in the Canadian Historical Review, Labour/le Travail, This Magazine Our Times Magazine, Ricochet, and Canadian Dimension. He has also served as a contributor to the Canadian Press, Toronto Star, CTV and CBC. His current project is a biography of Canadian labour leader A.R. Mosher.

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