What do economists predict employers of low-wage workers will do when a government raises the minimum wage by a large amount, say, $2.40 an hour?
An increase in the minimum wage doesn’t magically make low-wage workers more productive. So we predict that employers will reduce other components of the compensation package: reduce paid breaks, reduce their contribution to benefits such as health and dental insurance, and reduce other components of the pay package.
The Wisdom of the Coffee Shop
That is exactly what two owners of Tim Hortons coffee shops in Cobourg, Ontario are doing in response to the $2.40 per hour increase in the minimum wage that became law in Ontario on January 1. This is from a Canadian Press news story published in The Globe and Mail, a major national publication based in Toronto:
In a letter dated December 2017, Ron Joyce Jr., son of company co-founder Ron Joyce, and his wife, Jeri Horton-Joyce, who is Tim Hortons’ [sic] daughter, told employees at two Tim Hortons restaurants they own in Cobourg, Ont., that as of Jan. 1, they would no longer be entitled to paid breaks, and would have to pay at least half of the cost of their dental and health benefits
The minimum wage in Ontario between October 1, 2017, and December 31, 2017, was $11.60 per hou