Business owners, bracing for a minimum-wage hike, seek to ease financial impact

MinnPost photo by Briana Bierschbach
Small-business owner Kristen CiCi: "I want to support paying workers a fair wage. But I can say that, as a small-business owner as well, this would have a huge impact on us."

Bracing themselves for a likely bump in Minnesota’s minimum wage, business owners have shifted their strategy at the Minnesota Legislature this year, now hoping to have some say in how the increase is implemented.

That approach was on display Thursday evening, as a minimum-wage conference committee met for the first time since the final day of the 2013 session.

DFL leaders who control state government say a minimum-wage increase will be a priority this year.

Grocers, restaurateurs, small-business owners and lobbyists lined up alongside minimum wage workers to ask lawmakers to consider everything from training wages to some form of a tip credit. Most said they supported an increase in the minimum wage, just not as high as $9.50 per hour.

I’m not a Target executive. I don’t have millions of dollars that I’m making,” said Kristen CiCi, a longtime DFL activist who owns three small businesses in Minnesota. “Having been a Democrat and been heavily involved in campaigns for my entire life, I want to support paying workers a fair wage. But I can say that, as a small-business owner as well, this would have a huge impact on us.”

Minnesota’s current minimum wage is $6.15 an hour for large employers, but House Democrats would like to see that bumped to $9.50, briefly making Minnesota the highest minimum wage state in the nation. The Senate is pushing a bill that would raise the state’s minimum wage to $7.75 per hour, or 50 cents higher than the current federal minimum wage.

Jon Schmidt, owner of Mocha Monkey in Waconia, said he just opened a second coffee shop and doubled their number of employees from about 16 to 30 people. More than half of those workers are in high school.

“They have other jobs. They are doing this job for fun,” said Schmidt, who calculated a minimum-wage increase to $9.50 per hour would cost him between $15,000 and $17,000 annually. He asked lawmakers to considered adding a youth- or training-wage provision in the bill. “We do have a lot of high-schoolers. That is a big part of our business.”

The situation is similar for many grocery stores across the state, where a majority of their workers are between ages 16 to 19. “We would definitely have to look at layoffs and reducing our workforce,” said Steve Summers of Jerry’s Foods. “Labor is our highest expense in the business, and this would be devastating to us.”

Sam Leon, who owns a handful of Mexican restaurants in the metro area, asked legislators to keep the overall rate “reasonable” and phased in over three or four years. “Let’s not do this all in one punch,” he said. He also opposed indexing the wage to inflation. “Something this important should not be on autopilot,” he said. 

Many restaurant owners lined up to testify to support some kind of a tip credit in the minimum-wage bill.

Last year, restaurant groups pushed a so-called “tipped-employee tier” of the minimum wage, which would put the wage floor at $7.25 an hour as long as an employee’s earnings and tips average $12 an hour for a pay period. If an employee makes less than that, their base rate would increase to the current state-mandated minimum. All of Minnesota’s surrounding states in the Midwest impose a tip credit. 

“The tip credit makes it easier for restaurants to give raises to the lowest-paid, non-tipped workers in the hospitality industry. It keeps restaurant prices low,” said Kenn Rockler, lobbyist for the Tavern League of Minnesota.

“I do not oppose a raise in the minimum wage,” Rockler added. “I’m not sure how somebody can live on $10 an hour. I’m sure I’ll get some hate calls from some of my fellow lobbyists up there.”

Comments (9)

  1. Submitted by chuck holtman on 02/28/2014 - 10:39 am.

    What is the right policy?

    I admit I’ve not read closely, so perhaps this has been thoroughly gone over. But it seems there is a good argument to raise the minimum wage (significantly) for large employers but exempt small employers (leaving aside the challenge of drawing a workable line).

    From the standpoint of economic theory, small employers and workers are reasonably in an equal bargaining position, so offered wages would reflect value and a minimum wage would “distort the market.” Conversely, “bargaining position” between larger employers and workers, especially in retail, food services, etc, is, structurally, deeply unequal, so public “interference” in the contract to level the playing field is appropriate.

    Other considerations supporting a minimum wage for large employers vs. small employers include the fact that large employers operate more in a “quasi-public” context (i.e., a society reasonably could choose to operate them cooperatively rather than privately), meaning that it is reasonable to give them certain redistributive responsibilities (see also recently publicized data about substantial social welfare funds paid out to WalMart employees by taxpayers), and of course the practical matter that because of greater market concentration where they operate, they are better able than small businesses to absorb costs internally and recover them in pricing.

    Basically, it seems that a more nuanced debate than “yes” vs. “no” would get to the best result. Is this large employer/small employer distinction in play? Do other folks have thoughts about this?

  2. Submitted by Paul Brandon on 02/28/2014 - 10:42 am.

    Scale

    If only one business had to increase its wages, it would clearly suffer economically. That seems to be behind the logic of some of the objections to raising the state’s minimum wage.
    However, what in fact happens is that ALL comparable (and competitive) businesses increase their wages, so no one business gains an advantage.

    While overall labor costs do increase, the long term effect is more money in people’s pockets. The people who benefit most from an increase at the low end of the wage scale are people who spend most of their available money, so this increases overall demand and thus business volume, stimulating the economy to everyone’s benefit. This has been proven in situations where one of a pair of adjoining counties or states increases its minimum and the other doesn’t.

    More of the kids working at the Mocha Monkey will actually be able to afford to buy mochas.

  3. Submitted by Dennis Tester on 02/28/2014 - 11:40 am.

    The young lady is finding out

    that it’s pretty hard to be a small business owner and a DFL activist at the same time. The guiding principles are contradictory.

    You either believe in free market capitalism or you don’t.

    • Submitted by Paul Brandon on 02/28/2014 - 02:46 pm.

      ‘belief’

      is a religious concept.
      To ‘believe in’ something is to accept it without (or despite) evidence.
      I don’t believe in capitalism.
      I observe its effects at work in different economic systems.
      Like most ‘isms’, it’s dangerous when taken in too high a dosage.

      • Submitted by John Appelen on 03/02/2014 - 08:06 pm.

        Social…ism

        I am happy to hear you don’t believe in a government that just takes money from one citizen and gives it to another citizen. Then again…

  4. Submitted by Rick Ryan on 02/28/2014 - 11:44 am.

    level playing field

    If the minimum wage is raised, all these businesses will be in the same boat, their competition will have to pay the increased wage as well and it will not result in a competitive disadvantage.Payroll costs will increase, yes, but it will be same for everyone.

    By the way, the House Bill that passed last year,includes a training wage and the increase is phased in over 2 years. There is also a reduced minimum wage for Small Business. Get the facts before you complain about what is not in there.

  5. Submitted by Paul Udstrand on 03/01/2014 - 10:33 am.

    Does anyone ever ask…

    How much these business owners are making or how much they currently pay their employees? You’re telling us this would cost you $17k a year, but are you making a million a year or even $200k? You’ve got three business’s but what? You’re barely making ends meet? I haven’t watched this hearings so I’d really like to know if these business owners are asked basic questions about their income and if they answer them. So salaries are the biggest expense, what you think you do business without expenses?

    And Brandon is right, as long as the wages are across the board they won’t hit any one business harder than others.

    • Submitted by John Appelen on 03/02/2014 - 06:18 pm.

      As Good as Anywhere

      Paul, Rick and Paul,
      If all of the employers are forced to increase their expenses roughly equally, what do you think they will all do? Since all of their competitor’s have had their profits cut, and they will all want/need them back to stay viable. Who do you think will really pay these extra salaries?

      I am happy I don’t frequent the coffee shops…

  6. Submitted by John Appelen on 03/03/2014 - 09:22 am.

    Question

    Hi Art,
    So I will ask you a question that I typically get no answer to on this site.

    If we raise the cost of doing business in America by arbitrarily raising salaries above what the market can justify, will this encourage American consumers to buy more or fewer US products and services?

    My simple belief is that until Americans consumers are willing to pay more for American goods and services. It is going to be real hard to pay more to American workers…

    In summary, raising the costs will encourage more American’s to buy more foreign goods and services, because in relative terms they will be even cheaper yet… Let’s hope that wages in China, Vietnam, etc increase even faster…

Leave a Reply