PUBLISHER'S NOTEBOOK: Minimum wage increase making
big impact on local small businesses
Friday, April 18, 2014 6:40 AM
It's not hard to understand why there is such strong support for raising the minimum wage in Minnesota, which became a reality after the Legislature approved a bill and Gov. Mark Dayton signed it into law Monday. The measure will raise the minimum wage in Minnesota to $9.50 per hour, a rate that will be phased in by 2016.
Minnesota's minimum wage was $6.15 per hour, but only businesses that have less than $500,000 in annual revenue qualify for that rate, so most businesses in the state were under the federal $7.25 rate requirement.
Polls showed widespread support - nearly 80 percent - for raising the minimum wage, although that support decreased as the target rate went up. Fewer than half of the state's residents supported the $9.50 amount in a recent poll.
It's easy to get behind the initiative, which people feel would give the "little guy" a much-needed raise for his hard work in a company run by a multi-millionaire CEO that news reports show continued to rake in the money even through the recession.
However, the state also has many businesses run by "little guys," owners that aren't in business to make millions, but seek the satisfaction of running their own business for the joy of doing something they love on their terms.
Those owners of small businesses in the small towns in this area are concerned, maybe even scared, by the minimum wage increase. It isn't necessarily that they oppose some type of an increase, but the rapid jump has them worried about the fallout.
One business owner said the first phased increase to $8 this fall shouldn't be a problem, but the last one to $9.50 may force his business to spend $700 more per week on wages. His company employs a lot of young people in their first job, others supplementing another job and people retired from full-time jobs.
A city official is also wondering about the ramifications of this change on the city's seasonal workers and youth for summer jobs, such as lifeguard or park and rec helpers, at rates near minimum wage.
It isn't that these small businesses have a lot of - and in some cases, any - minimum wage workers. However, as most people know, wages in rural areas lag behind urban rates, meaning many workers who have been with these companies for a while will soon be equal to or barely above newly hired workers making the new minimum wage. Will that push their wages higher, result in them leaving or just cause resentment?
A compelling argument for raising the minimum wage is that a person can't live on the $290 per week that the $6.15 minimum wage brings in for a full-time worker. There was even a widely-publicized challenge made to state lawmakers to try to live on minimum wage for a week to see what it is like.
However, a study by the Minnesota Department of Labor and Industry on the minimum wage shows that just 2.2 percent of full-time workers earn the federal minimum wage of $7.25 or less. Part-time workers are just 32 percent of the state's hourly workforce, but make up 72 percent of those workers paid the minimum or less.
The low-paying part-time jobs are probably more prevalent in rural Minnesota. Some workers are willing to accept lesser-paying jobs to work in their hometown. Others, perhaps retired people or parents desiring more time with their children, take part-time jobs at lower rates to supplement their Social Security or spouse's income.
Small town employers are also willing to give young and low-skilled workers the opportunity to learn on the job. These beginning workers learn what can't be taught in schools: Self-confidence, attention to detail, time management, problem-solving and communications skills. In recent roundtables by the Minnesota Chamber of Commerce, businesses repeated concerns that recent graduates lack these "soft skills."
Will a push in wages from the bottom trickle through to raise all wages, or will it lead to the elimination of these entry level or casual jobs to a more highly specialized workforce in rural Minnesota?
And what about businesses that provide a community service, but are more of a hobby to the owners than a professional business, such as ones that offer low-cost entertainment options or sell unique creations to small town residents?
The ramifications aren't truly known yet as the change will take a while to sink in for local business owners.
However, there are going to be some drastic changes because those businesses that are paying the federal minimum wage or near that wage will see as much as a 31 percent increase in employee cost. This is coming at a time after several years of flat, or declining, revenue as the effects of the recession linger.
For Greater Minnesota businesses, which even more so than their urban counterparts have yet to make their way back to normalcy since the recession hit, there are real fears. Most local businesses aren't large enough to just absorb such a steep increase in expense.
It may sound like a good idea to force McDonald's or Starbucks to pay closer to an urban living wage to their workers. In Greater Minnesota, it may be forcing business owners, like many farmers have done before them, to choose between getting more specialized with only professional employees or reducing the size of the business so just the owner can run it.
And, if farming is any indication, the in-between businesses will fall as the mandates from afar continue to come, driving up the costs needed to compete on a modest scale.
This scenario may be no more accurate than the others, which range from the complete degradation of the business climate in the state to an upgrade in the quality of life in the Minnesota. Studies by economists show that generally there isn't much real change either way in most states when the minimum wage goes up, and that very well could be true in Minnesota.
However, our state officials are really going to put that theory to the test by mandating such a steep increase in a short amount of time.