How raising minimum wage could affect manufacturers

Jul. 12, 2017 – The province of Ontario is proposing to raise minimum wage to $15 per hour by 2019, up from the current minimum wage of $11.40. Predictably, the announcement has caused instant and intense debate, along equally predictable lines.

Since the same arguments get replayed every time without changing anyone’s established opinion, I think it’s a good time to look at things differently, and in particular, how they could — or should — affect manufacturing.

First of all, there is an unappreciated underlying positive effect that even opponents may like. Radically raising the minimum wage for working people increases the gap between working people and non-working people. I know there will soon be a follow-on cry from many folks in the non-working community, but when it makes little difference to people whether they work or not, many choose not to work. Some would argue that decreasing benefits or support to the non-working group is the answer, but of the two possibilities, I’d rather reward those that choose to work rather than penalize those who don’t. Give people a fair and legitimate opportunity to look after themselves and their families, and there will be less reliance on society’s safety nets. Even Conservatives should like that!

From a manufacturing point of view, this issue may be a wakeup call for many. Manufacturing is a value-creating industry, the largest single value-creating sector in our economy. It is the economic engine that is responsible for the standard of living that North America has enjoyed for most of the last century. While the service sector exchanges value and the retail sector largely exports value, the manufacturing sector creates value. Every hour of labour added to anything we produce increases the value of the thing we produce. Workers in manufacturing are not simply expenses or costs on the company’s accounting ledgers, they are value creators — every hour they work on the product creates additional value. The thought that some manufacturers may pay close to minimum wage for value-creating activity astounds me.

I know the push back I am certain to get from some readers in regards to that last statement, but let me continue to take this conversation in a different direction. Henry Ford, in my opinion, created the middle class by paying manufacturing workers nearly twice as much as what workers outside of manufacturing were making. Whether it happened by design or by consequence, the result is that it helped build a national economy that could afford the products being produced. Before we start arguing the pros and cons of our society’s reliance on government and government policies, let’s examine the core issue leading up to this growing reliance: the failing or decline of the other institutions in our society — our families, our churches, our communities, and yes, our companies. And it’s that last one that we in manufacturing need to look at closely right now. If a raise in the minimum wage threatens the viability of a manufacturing company, there are other things that obviously need to be looked at.

Let’s start with value. Right now, we measure people’s time and that is what we pay them for – how much time they spend on the job. The whole productivity conversation is primarily a management conversation; when it’s brought up with the workers, it’s usually as a measurement of their lack of performance, or the need for an increase in performance, or as a factor affecting the company’s profit and loss, or perhaps even the primary sustainability issue of the company itself. But, those conversations have nothing to do with creating value through the work they do on an hour-by-hour or day-by-day basis, not directly anyway.

My belief is that when we — everyone in the plant — put more attention on the measurable value being created by the efforts of each employee with the production of the product, there will be more focus put on the value-adding activities of every job, and less on all the other things we associate with work. Sound too altruistic? My reply to that is that it does in fact work that way. In manual or operator dependent operations, we have seen value-adding activity (i.e. productivity) increase by often more than 30 per cent simply by better connecting the efforts of the workers with the work they are doing. What gets measured gets improved, right? These are typically the lowest paying jobs in manufacturing — the closest to minimum wage — but they are also the ones where the effect of engagement is the greatest.

As manufacturers, before we start arguing the potential negative effects of an increase in minimum wage to our industry, we need to first examine why we might be paying wages close to minimum wage in the first place. Remember, ours is a value-creating industry, unlike the service industry or retail sectors. The other sectors do not have the advantage of adding real value to their product by applying human effort, but we do. We have more options and opportunities to do better, and engaging our people in the value-adding process is one of them. Before we examine and debate policy, let’s be sure to examine ourselves. Our future is not in the hands of our governments, it’s in the hands of our customers and our employees. Let’s work with them first.

“Measure. Analyze. Share.” (Don’t forget to share!). He can be reached at paulh@getfreepoint.com or www.getfreepoint.com.