Businesses Stung by $15-an-Hour Pay
Small Businesses Discuss the Problems Posed by a Rising Minimum Wage
December 11, 2013 - Wall Street Journal
Mike Condon says his SeaTac,
Wash., coffee shop won't have to comply with the new minimum wage but expects it
to affect recruiting workers. Matthew
Ryan Williams for The Wall Street Journal
With 40 employees and less than $5 million in annual revenue, the franchise
hotel in SeaTac, Wash., could be the typical American small business. But the
Holiday Inn Express will soon have to give most of its staff pay raises that are
anything but routine.
Officials in SeaTac, which is 10 square miles nestled between Seattle and
Tacoma and consists of an airport and its surroundings, confirmed this month
that it will raise the minimum wage for many workers to $15 an hour starting in
January. That's a 63% increase and the highest municipal minimum wage in the
nation.
The original vote in November was so close that a recount had to be ordered.
SeaTac is an extreme example of the mounting labor costs facing employers
nationwide, and it may serve as a controlled experiment on the impact of a
significant wage hike in a small community.
Elsewhere in Washington state, employers already pay $9.19 an hour, the
highest state minimum wage in the country, and that amount will rise 13 cents
next month. In January, Oregon's hourly minimum will climb to $9.10, New York's
to $8 and Vermont's to $8.73. Among municipalities, San Francisco currently has
the highest minimum wage, at $10.55, which will increase to $10.74 next
month.
Han Kim,
a partner in the 171-room Holiday Inn Express franchise in SeaTac, as well as
two other SeaTac hotels, estimates that for all three, the city's wage hike to
$15 hourly will result in about $400,000 in additional labor expenses.
"We are running pretty thin as it is so we cannot eliminate positions," he
says. Increasing the price of a room is too risky, he adds. "I cannot go around
changing prices without my competition [also] changing them. . . . We'll have to
make less money I guess."
Mr. Kim says he is putting plans to build a fourth hotel property in SeaTec
on hold. "We are waiting to see how things are going to pan out," he says.
The issue is of particular concern for small employers, which often complain
that they operate on thinner margins than their large counterparts. Some
economists say a higher minimum wage prompts small firms to reduce workers'
hours and scale back hiring, while others argue it improves employee retention
and results in increased consumer spending.
President Barack Obama has backed raising the federal minimum to $10.10 an
hour, from its current $7.25, by 2015. That proposal would raise the wages of
about 30 million workers, who would receive more than $51 billion in additional
pay over the phase-in period, according to a March report from the Economic
Policy Institute.
Mike Condon
says his SeaTac coffee shop won't be required to comply with the city's new
$15-an-hour minimum, which applies only to hospitality and transportation
workers and excludes airlines and small businesses with fewer than 25 employees.
But he expects the higher rate to make it harder for him to recruit and
retain entry-level workers. "Employees of my own that are well trained can go
over to these jobs at the airport now and make more money than I can possibly
pay them," he says. "With our margins, I would not be able to match those
salaries and stay in business."
Mr. Condon renegotiated his shop's annual lease in August so he could easily
opt out in anticipation of the wage change. "I'm thinking of relocating," he
says.
Most employers in SeaTac can't easily relocate. "We are left with no choice
but to make the best of it," says Scott Ostrander, general manager of Cedar
Brook Lodge, a boutique hotel in SeaTac with less than $10 million in annual
revenue. Of its 117 employees, about 70% earn less than $15 an hour and will get
automatic raises next year.
"We sit on 18 acres of naturally restored wetland. It's not like we can just
pick up all 18 acres and move," he says.
About 28% of 599 small businesses across the U.S. with annual revenue of $1
million to $20 million said they support raising the federal minimum wage to
$10.10 an hour, according to a survey this week by The Wall Street Journal and
Vistage International; 65% were opposed and 7% selected "other."
"There are businesses that sell to low-wage earners, and so an increase in
their income could translate into an increase in their business," says Richard
Curtin, a research professor at the University of Michigan.
Last Thursday, fast-food workers launched protests in cities across the
country, calling for higher pay and saying they can't survive on minimum-wage
income. Melinda Topel,
42 years old, who makes the $7.35-an-hour minimum wage at a
McDonald's
franchise in Kansas City, Mo., recently went on
strike seeking $15 an hour.
Asked whether a higher wage would cause her to lose hours or her job, she
said: "I'm not afraid of that. McDonald's Corp. makes billions of dollars a
year, thousands of dollars an hour. They can afford to pay us what we
deserve."
If the minimum wage is raised, "it would help me where I can pay my rent and
my utilities. I would be able to buy shoes for my kids for school, to buy
clothes that they need for school, winter jackets. I wouldn't have to worry
about whether or not my kids are cold, or if my lights are going to get turned
off."
A McDonald's spokeswoman said via email that the company offers its employees
competitive pay and benefits.
Rondell Johnson,
23, earns the minimum in Pennsylvania, $7.25 an hour, working as a
baggage handler for airport subcontractor PrimeFlight at Philadelphia
International Airport.
"It's a headache. You really can't do nothing. You work to pay bills," he
says, adding that he would "move tomorrow" to a city like SeaTac because of the
city's significantly higher starting-pay requirements. PrimeFlight declined to
comment.
Gary Gerber,
founder and owner of Sun Light & Power, in Berkeley, Calif., starts his
entry-level workers at $15 an hour or more and believes that arguments against a
higher minimum wage are "probably being greatly over-blown." He says: "What's
going to happen is the raising of the wage will pump a bunch more money into the
economy."
Mr. Gerber's company, which designs and installs solar-electric and
solar-hot-water systems, has 65 employees and about $14 million in annual
revenue. The minimum wage in California is $8 an hour, and it's slated to
increase to $9 next July. "You're going to get better quality employees if you
pay better," he says.
Frank and Sydne Albanese, co-owners of a small café in downtown Seattle since
2003, say that over the years they have come up with strategies for coping with
minimum-wage increases.
For example, they maintain a "skeleton crew" of just five minimum-wage
earners and keep their inventory as lean as possible. "Excess inventory just
means dollars are sitting in your back room," says Mr. Albanese.
The business also rents out its space for private parties, he says. "You have
to find every potential revenue channel that you can."
Write to Sarah E. Needleman at sarah.needleman@wsj.com and Daniel Lippman at daniel.lippman@wsj.com
Corrections & Amplifications
New
York's minimum hourly wage will increase to $8 on Dec. 31 from $7.25. It will
increase again to $8.75 in December 2014. A Marketplace article on Thursday
about a new minimum wage adopted in SeaTac, Wash., incorrectly said New York's
minimum will increase to $8.75 in January.