(Adds remarks by Kenney about wages)
By Frank McGurty
April 25 (Reuters) - The Canadian government said on Friday companies should raise wages to encourage more Canadians to apply for unfilled jobs, saying the freeze it imposed this week on restaurants hiring temporary foreign workers is a wake-up call for all employers.
The moratorium is on foreign hires in food-service businesses only. It follows media reports that McDonald's Corp restaurants turned away qualified Canadians while using Canada's Temporary Foreign Worker Program to fill job openings.
Jason Kenney, the employment and social development minister, said he was distressed that wages in Canada have barely kept pace with inflation since the global economic downturn.
"It's about raising wage rates. It's about increasing salaries. It's about increasing investments in training," he said at a news conference. "We expect to see employers not just in that sector, but in every sector, doing better."
The Temporary Foreign Worker Program was designed to let employers go outside the country for new hires when unable to find locals to do the job.
"Our government has been clear," Kenney said in a statement late Thursday in announcing the freeze. "Canadians must have the first chance at available jobs."
He said the Conservative government is considering unspecified reforms of the program to make sure employers recruit and train Canadians for jobs.
Canada blacklisted three McDonald's restaurants from the program in early April, and the company ended up suspending all applications for temporary foreign worker permits this week while a third party conducted an audit.
Tim Hortons Inc, which operates more than 3,500 doughnut and coffee shops in Canada, would not immediately comment on the impact of the mortorium on its operations, but it said that temporary foreign workers account about 5 percent of its 90,000-strong Canadian workforce.
The government is no longer processing new applications from food-service businesses and would stop restaurants from hiring foreign temporary workers even if it has already approved applications, Kenney said.
The minister gave no indication that he supported a complete shutdown of the practice of bringing in low-skilled workers, saying only that the moratorium in food services would last until his department completes a general review.
An easing of the program's restrictions on hiring foreign workers over the past decade has contributed higher unemployment in some sectors in the provinces of Alberta and British Columbia, according to a report released by the C.D. Howe Institute this week.
Low-skill workers, such as those in the hospitality and service industries, have been hit particularly hard, Dominique Gross, the study's author, told Reuters.
"The local workers were penalized by the fact that it was much easier to hire temporary foreign workers," said Gross, a professor of public policy at Simon Fraser University in Vancouver.
Alexandra Fortier, a spokeswoman for Kenney, said Statistics Canada had deemed the effect of temporary foreign workers on employment to be negligible, representing 2 percent of overall employment.
Canada has already tightened restrictions on the program, which the C.D. Howe study said expanded from 101,000 foreign workers in 2002 to 338,000 in 2012. It no longer allows companies to pay foreign workers below the median wage for a given job and now charges a C$275 ($250) fee for each application.
But the study found those changes insufficient, noting that the fee was too low to serve as a deterrent to applications. Also, empirical labor market data on which to base decisions is lacking, it said.
"We recognize the need for better labor market information," Fortier said. "That is why we are working with StatsCanada on ways to get more robust labor market information and are also working with provinces."
The moratorium announced this week has no effect on a temporary foreign worker program for the agricultural industry. The government said there were "proven acute labor shortages" in that industry, and unfilled farm jobs were short-term "by definition".
The Canadian Broadcasting Corp reported this month that a McDonald's franchise owner in Victoria, British Columbia, was bringing in foreign workers at three locations, while turning away seemingly qualified Canadian job-seekers and cutting the local staff's working hours.
That was followed by similar media reports involving other McDonald's restaurants in Western Canada.
The company, which said temporary foreign workers account for about 4 percent of its 85,000-member Canadian workforce, has cut ties with the Victoria franchise-owner but has defended its broader use of the program. It said it has used the program only as a last resort in markets where there are severe labor shortages.
McDonald's is not the only company to face a backlash. Outside of food service, Royal Bank of Canada was criticized last year after a CBC report that U.S. outsourcing company used temporary foreign worker visas as it worked to replace staff in RBC's Toronto investor services division.
$1=$1.10 Canadian Additional reporting by Solarina Ho in Toronto, Julie Gordon in Vancouver and Randall Palmer and Louise Egan in Ottawa; Editing by Lisa Von Ahn and Peter Galloway