A hike in the minimum wage — either on the state or federal level — could be “horrendously damaging” for business or a boon to the economy, depending on to whom you speak.
Ohio lawmakers are looking to raise the state’s minimum wage from $8.10 to $10.10, according to legislation introduced this month. Presidential candidate Hillary Clinton has voiced her support for a $12 federal minimum wage and candidate Bernie Sanders for a $15 minimum wage.
But can the economy support any of those increases, even if they are gradual?
“All it’s going to do is cause the price of everything to go up … so where do they come out ahead?” said Nick Dadabo, owner of Chester’s Pizzeria in Hamilton, which employs 17 people starting at a wage of around $8.50 or $8.75. “If they really want to do something for everybody that will get them a little bit more buying power … why don’t they lower our taxes?”
A minimum-wage hike could see Dadabo’s eatery hiking the price of a large pizza with two toppings from $22 “to maybe 5 bucks more,” Dadabo said.
“That’s just a guess,” he said. “I’d have to take a look at what my cost of doing business is because all my costs are going to go up because of it.”
Legislation approved in 2006 tied raises in Ohio’s minimum wage to August-to-August percentage changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Those adjustments are designed to allow for workers’ salaries to gradually increase to keep up with the cost of living.
But earlier this month, Ohio legislators Kent Smith (D-Euclid) and Hearcel Craig (D-Columbus) introduced a bill to replace that measure with one that would boost the state’s minimum wage from $8.10 to $10.10.
Doing so would provide “a much needed assist to working Ohioans who are struggling to make ends meet,” Smith said in a written statement.
“Roughly 23 percent of Ohio children would see one of their parents get a raise if Ohio’s minimum wage is increased to $10.10 an hour,” he said. “Increasing the minimum wage would boost earnings of working families, spur Ohio’s economy and create new jobs.”
“By modernizing wages, we let one million working people in our state earn the resources necessary to simply get by — for many this means putting food on their families’ table and paying for medicine, child care and school supplies,” he said.
Under the bill, tipped employees will be paid no less than half the new minimum wage.
“Every Ohioan deserves to earn honest wages for an honest day’s work,” Craig said. “Too many families are struggling to find the good-paying jobs they lost during the Great Recession, but the legislature has focused on giving out tax breaks that disproportionately benefit the wealthiest Ohioans at the expense of the middle class. Modernizing wages in Ohio will help working families get back up on their feet.”
The lawmakers’ bill comes as international companies are reexamining wages, with Walmart Stores Inc., Ohio’s largest private employer with more than 44,000 workers statewide, recently boosting wages for all of its U.S. workers hired before Jan. 1 of this year to $10 an hour.
Fighting against the possibility of $12 and $15 wage increases are organizations like the National Small Business Association and the National Federation of Independent Business, both of which argue that requiring employers to pay workers more will create a domino-like effect of workers with higher salaries lobbying for raises commensurate with their experience.
“When you’re talking about a nearly double jump … in the wage you’re paying, it’s not just those minimum wage workers that are impacted, it’s every worker that works there,” said NSBA spokeswoman Molly Day. “That’s one of the key concerns we have.”
Downsizing or not being able to make new hires as a result of having to pay more in payroll is “a very real concern,” Day said, especially at a time when small business job growth hasn’t fully recovered from the recession.
“It’s still lagging, there’s still not the kind of job creation that we’ve seen in terms of new start-ups and those people in new businesses hiring new employees,” she said. “that kind of jump right now at this time I think would be particularly problematic.”
NFIB Ohio Legislative Director Chris Ferruso said its members have expressed over the years that they are opposed to legislative changes in the minimum wage and that “the market should dictate the wage.”
“At the end of the day, small business owners … are most impacted by artificial increases in labor (costs),” Ferruso said. “Typically it is the most expensive cost of doing business is labor, so any time you put upward pressure on that, something has to give somewhere.”
That, he said, could mean anything from not bringing on new employees or laying off current staff to replacing them entirely via automation or even increasing prices, which Ferruso said “cannot be done.”
“A lot of members compete in very competitive environments so increasing the cost of doing business for their product or their service will result in the loss of a contract,” he said.
With the cost of labor likely leading to a price hike for goods and services, the dollar will not go as far as it once did, Ferruso said.
“If the cost of everything in your life goes up as a result of the increased cost of labor, then … are consumers able to purchase more, if everything costs more?” he said.
Amy Keller, who started the substance abuse treatment business The Next Right Thing in Middletown and Hamilton in 2007, said she does not start any employee out for anything under $12 and has no problem with the minimum wage being raised to as much as $15 an hour.
“I feel like the employees are the backbone of my business and without them I have no business,” she said. “Being an employer in the United State of America, people should be able to feed their children with one job.”
By paying her employees more, she’s had “very little” staff turnover, something that typically costs more money in training, benefits and unemployment.
And what about the money it takes from her possible profits?
”I’m basically OK making a little less in providing a good service,” she said. “I think we absorb it and in the long run we get it back in staff retention and a better product and higher sales.
“I just look at it as a big picture of opportunity. When my employees are happy, they’re doing a better job, they’re increasing sales, and the bottom line, it works out in the end,” she said.
Dadabo said he wishes he could pay his workers more, but “I don’t have that kind of money coming in.”
Ohio raising its minimum wage will turn Ohio force employers out of the state rather than potentially spending thousands of dollars more in payroll and payroll taxes, he said.
“Who’s going to want to build a business here where you’re forced to pay your people that kind of money?” Dadabo said. “I think it’s going to be horrendously damaging to a lot of new businesses and for somebody like us who’s been doing this for 62 years, it’ll hurt us. It’ll stop the people from coming through the door with our paycheck in their pocket because … your paycheck comes from the customer.”
Moving profits from business owners to the paycheck of their employees amounts to a case of “robbing Peter to pay Paul,” where the same money that would have been spent or invested by a business owners is instead now spent by an employee.
Bill Even, a Miami University professor of economics, said a minimum-wage hike has winners and losers on both sides of the equation.
“The winners are the people who were earning somewhere between the old and the new minimum. Their wage goes up and their incomes rise,” Even said. “The losers are the ones who lose jobs as a result of it.”
Raise the wage too much, he said, and employers will search for ways to replace labor with other forms of technology, including automated processes.
The fast food industry already is doing this, reducing the amount of cashiers by installing kiosks where customers punch in their own orders and pay without interacting with an employees.
It’s also becoming apparent in the grocery industry, which is cutting back on cashiers in favor of self-checkout lanes.
With so many differences in minimum wage across the United States, it makes more sense to allow each state to adjust its minimum wage based on its own cost of living, Even said.
Even, who has performed analysis on the suggested phase in of a $12 percent minimum wage by 2020 said data shows job losses of 18 percent, amounting to about job losses of 770,000 nationwide.
“A lot of these minimum-wage employers aren’t real rich to begin with,” he said. “They’re working with profit margins that are pretty slim, so when the minimum goes up like that, there’s a bunch of companies that are on the edge.”
But whereas an owner might choose to save excess profits to reinvest in the business at a later date, workers with pay raises are more likely to get out and spend, stimulating the economy more completely because “the worker spends the whole dollar while the owner might only spend 90 center on the dollar,” Even said.
However, David Cooper, economic analyst for the Economic Policy Institute, said the “$12 by 2020” initiative gets workers back to the same economic levels of the 1960s, when the minimum wage was equal to roughly 55 percent of the wage of the typical U.S. worker. Restoring the $12 federal minimum wage by 2020 “would undo the growth in wage inequality that’s happened at the lower end of the wage distribution over the last 45 years,” Cooper said.
“We think that’s a good thing, that the federal minimum wage is far below basically every historical benchmark against which you can judge it,” he said. “Twelve dollars by 2020, you can make a case that that’s the bare minimum we should do because that essentially gets us back to where we were a generation ago.”
But since that time, the United States has seen “tremendous improvements” in labor productivity, such that the economy has the capacity to have a minimum wage that is greater than $12, Cooper said.
“It’s just a question of over what time period we would want to get there and how far we would we want to take it,” he said.
Raising the minimum wage gradually, over a series of years to at least $12 an hour would be positive for not only low-wage workers, but for employers, as well, who would see turnover decrease and productivity increase, Cooper said.
In addition, “most of research shows those prices increases are fairly modest compared to the size of the increase in wages for the workers because labor is just one share of total operating costs for those businesses,” he said.