OPINION: The trickle-up effect of Ontario’s minimum wage increase

When Ontario’s Progressive Conservative government announced in the recent Fall Economic Statement that the province’s minimum wage would increase to $15 from $14.35 on January 1, 2022, labour leaders, workers and many other observers applauded the move.

Advocates had long been calling for Queen’s Park to increase the minimum wage in a drive to help every Ontarian earn a satisfactory living wage. The goal is commendable, but for many security firms — including those deeply committed to their employee’s overall well-being — the timing of the increase is less than ideal.

To say the least, our industry has been heavily impacted by the coronavirus pandemic. Office complexes, hotels, retail outlets, commercial properties — and more — reduced their security coverage hours as social distancing measures restricted on-site access. In other cases, security providers saw a spike in demand from customers such as grocery store owners and healthcare facility managers who suddenly required an increased presence to help enforce COVID-19 rules and regulations across their properties. As guard demand spiked, staff availability sometimes diminished.

The events of the past 18 months have created unprecedented challenges for our sector. We largely weathered the storm, but the pandemic’s effects will be felt for some time. Now is not the time to implement a significant increase to the provincial minimum wage.

Labour shortages across Canada

Recent studies have underscored sector-specific labour shortages across the economy. That lack of workers has helped push up wages and has resulted in major headaches for owners of some small to medium-sized businesses. According to the latest Statistics Canada data, national employment vacancies reached 731,905 available jobs in the second quarter of this year — for a vacancy rate of 4.6 per cent — up from 560,215 openings, or a rate of 3.5 per cent, in the fourth quarter of 2020. Economists have pointed to everything from COVID-19 relief programs such as the now-defunct Canada Emergency Response Benefit to pandemic-related workplace anxieties as contributing to the labour gap.

For service providers such as security firms, the job vacancy rate climbed to 5.5 per cent this year. The average hourly wage rose to $22.70 in the first quarter, up from $21.35 in the fourth quarter of 2020. In other words, market forces have already been driving up wages across industries such as ours, putting downward pressure on organizational bottom lines.

Enter the minimum wage increase and the potential for unintended consequences.

The ‘trickle-up’ conundrum

The impact of an increase to the minimum wage isn’t limited to workers’ individual pay packets. It inevitably produces a ‘trickle up’ effect. That’s when supervisors and other longer-tenured staff begin making comparisons between their wages and those of front-line personnel. Let’s say the former group earned $20 per hour prior to the minimum wage increase, or nearly $6 more than their direct reports. After that increase, it’s only logical that those supervisors will expect a pay increase to keep their compensation in alignment with the employees they manage. That supervisor may now expect to earn $21 to $24 per hour, an increase that might also account for a rise in inflation, generally.

The mere perception that a supervisor ‘should’ be earning ‘X’ amount more than non-management employees will drive salary expectations higher.

Those extra labour costs must either be absorbed by the security service provider or be passed along to their clients in the form of higher fees. The trouble is that many clients are facing inflationary pressures across their businesses, as well. A substantial number will be unwilling to accept higher security costs, just as some security providers will keep their rates artificially low, amassing contracts and doing business based on volume rather than adequately pricing their services to deliver the kind of experience that clients expect (and deserve).

This potential race to the bottom benefits no one, while generating additional operational headwinds for a security industry that’s eager for both stability and new opportunities for growth.

We’ve seen this scenario play out before with previous increases to the provincial minimum wage. In some cases, clients — at least in the short term — have reduced their security coverage to account for a rise in fees. Hours are reduced and it’s the front-line security professionals who suffer negative financial outcomes in the end.

Market forces shape compensation structures

The bottom line at my company, Wincon Security, is that we want the very best for our people. We want them to earn a strong living wage — which explains why we pay above industry standard. Their overall wellness and professional success is a key focus for our organization. I know other security providers that take the same care to build strong workplace cultures and who genuinely want their employees to thrive.

Economic realities will always shape the financial structure of our industry, from the fees we charge to the wages we can offer team members. The timing of Ontario’s latest minimum wage increase is inappropriate for an economy emerging from the worst of a once-in-a-century pandemic, one still struggling to mitigate the financial burden it’s lowered onto small to medium-sized businesses across the province. That includes security firms.

Rather than improving the lives of minimum-wage workers, this increase could leave them (and our industry) worse off.

Winston Stewart is the president and CEO of Wincon Security. Read Winston’s regular Industry View column in each issue of Canadian Security.