WASHINGTON – When President Barack Obama raised his pen to raise wages for employees of government contractors,he also called for business owners to follow suit.
“Tonight I ask more of America’s business leaders to … do what you can to raise your employees’ wages,” Obama said during his State of the Union address.
But how will raising wages affect business? Many executives and small business owners have begun to crunch the numbers to answer this question for their own enterprises.
Doing the math
Chris Sommers is the co-owner of St. Louis-based Euclid Hospitality Group,which owns Pi Pizzeria,a restaurant with five locations in Missouri and one in Washington.
This month,his lowest-paid employees began to make $10.10 an hour,and Sommers said that for his business,it made sense. The cost of higher wages will be covered by increased retention.
“We did some thorough analysis to see what would this would cost us and how we would pay for it without passing the expense on to our customers,” said Sommers,whose business employs about 350 people.
“Evidence tells us that the cost of turnover is really expensive,and whether it’s the advertisement for the position,the training and the cost of mistakes made by new employees,[it] affects our food cost and labor costs significantly,” he said. “We feel as if we can have a small decrease in turnover or an increase in retention we can more than easily pay for this.”
The Gap Inc.,which pledged in February to raise its minimum wage incrementally to $10 by the end of 2015,also pointed out in a statement to retention as one of the drivers for higher wages. The company said 65,000 workers will be affected.
Jill Erber is the owner Cheesetique,which runs two restaurants in Northern Virginia employing about 80 workers.
She said that the impact of having a minimum handed down from Congress has disproportionate impact on smaller businesses.
“In my business,if you we’re to raise the base level … you have to envision that rippling all the way through. Where are those additional wages going to come from? They have to come from somewhere,” said Erber,who started the specialty cheese shop in 2004. “Obviously,the larger you are the more you can absorb certain costs. A small business like mine,you have a harder time absorbing certain costs. But I think the trickle through cannot be underestimated.”
Erber said her lowest-paid employees make $8 an hour,75 cents above the minimum wage in Virginia. She said that while turnover is costly,it’s more than wages that keeps employees around.
“People work for Cheesetique for all sorts of reasons. Of course,it for wages,but they also work for me because we provide an awesome combination of benefits for them. As an employer,what’s important to me is to be able to craft that selection of benefits. It allows me to be a more creative employer,” Erber said. “The strongest tool that we have as job creators,business owners and employees is our ability to choose what we do,and choose what we will accept for the work that we do. I think that by raising the minimum wage you actually end up decreasing the choices that both employers and employees have.”
Drew Greenblatt is the owner and CEO of Marlin Steel Wire Products,a manufacturing company in Baltimore that exports to manufacturing giants such as China.
In the plant,workers weld and mold steel wire to create baskets and containers. He said that because manufacturing companies,including his own,tend to employ medium- to high-skilled workers,they won’t directly feel the impact in their payrolls.
Greenblatt,who employs close to 40 workers,said that they will be hurt by a trend of increased regulation.
“Right now,we pay taxes that are higher than Canada,so when we compete against a Canadian company,it hurts my employees. Things like raising the minimum wage and having a very high tax structure are harmful,” said Greenblatt,who is also the chairman of the National Alliance for Jobs and Innovation. “These things slow us down.”
The Maryland legislature last week approved a plan to raise the state’s minimum wage to $10.10,which Gov. Martin O’Malley,D,said in January was his top legislative proposal.
Raise to the top?
Pi Pizza and The Gap have gotten public kudos from the president. The owner of another pizzeria company,Minnesota’s Punch Pizza,who raised his company’s minimum wage last year,sat in the first lady’s box during the State of the Union address in January.
“We had one of our best weekends in a really long time across the board,” Sommers said of the weekend following the announcement his company would pay higher wages. “The feedback from our guests and our employees has been incredible. We’ve been getting countless emails and text messages and tweets from our customers saying thank you. Some people say,“I’ve never been to your restaurant,but now I’m going to come.”
Polling has also shown that when it comes to the midterm elections,voters skew slightly toward higher wages.
According to an ABC News/Washington Post poll in March,Americans are more likely rather than less likely – 50 points to 19 points – to vote for a candidate who supports raising the minimum wage.
The bill that would raise the federal minimum wage to $10.10 and index it to inflation remains in the halls of the Capitol.
The Fair Minimum Wage Act – introduced in 2012 by Sen.Tom Harkin,D-Iowa,and Rep. George Miller,D-Calif. – is waiting to be brought to a vote,while its opponents argue that it would put strain on businesses and cut jobs,and its supporters that it will have little to zero impact on job growth.
Reach reporter Melhor Leonor at [email protected] or 202-326-9861. SHFWire stories are free to any news organization that gives the reporter a byline and credits the SHFWire.