Minimum wage escalator worries business leaders

The 10-cent increase in the state’s minimum wage, effective Jan. 1, is not in itself a reason to worry, but the mechanics of the law have the potential to hinder Missouri’s economy and squeeze employers, business owners and critics say.

“At a time when Missouri businesses are struggling to provide jobs in today’s difficult economic climate, it is concerning news that labor costs will increase and Missouri businesses will become less competitive compared to other surrounding states,” said Daniel Mehan, Missouri Chamber of Commerce and Industry president and CEO, in a news release. “This announcement underlines the need to break Missouri’s minimum wage away from the automatic escalator to which it is currently tied. It causes uncertainty and positions Missouri to eventually raise its minimum wage to uncompetitive levels.”

Currently at $7.25 an hour, the upward trend will raise Missouri’s minimum wage to $7.35 an hour, 10 cents above the federal rate. According to a release by Washington, D.C-based Employment Policies Institute, 10 states and three cities will increase their minimum wages above the federal level on Jan. 1. Washington continues to lead the country with the highest state minimum wage, $9.19 per hour, but San Francisco will have the highest overall minimum wage at $10.55 per hour.

“There is little doubt that raising the minimum wage has disastrous results for the most vulnerable jobseekers,” said Michael Saltsman, research fellow at EPI. “The research on minimum wage hikes is clear: They reduce job opportunities and do little to reduce poverty.”

Statewide perspective
The bump to $7.35 will place Missouri’s minimum wage higher than all neighboring states except Illinois, which will pay hourly workers a minimum of $8.25 as of Jan. 1. The move puts Missouri at a competitive disadvantage, inhibiting attraction of new businesses and depriving the state of jobs, said Sandy Howard, vice president for public affairs for the Springfield Area Chamber of Commerce.

“It isn’t the increase that we are opposed to. It’s that we think it’s a policy that is better handled at the federal level,” Howard said.

Wage-rate imbalances encourage businesses to move across state lines, while a standard federal rate would place all states on a level playing field, she said.

Concerned about the Missouri law, which went into effect in 2007 after voters approved a 2006 ballot initiative by a 3-1 margin, business owners are critical of indexing, which links the rate to changes in the Consumer Price Index.

Karen Buschmann, vice president of communications for the Missouri chamber, illustrated the potential consequences of indexing. “If a company’s on our border, and labor costs are more expensive in Missouri, then moving their company – sometimes just down the street in some cases, Kansas City, for example – they’re going to do that,” she said.

Lara Granich, director of Missouri Jobs for Justice, a labor advocacy group, questioned the competitive-imbalance concept.

“I think that is a scare tactic that is not grounded in real research,” she said. “Illinois’ rate is $8.25, $1 above Missouri’s, yet there’s no sign of Illinois businesses crossing the river for lower wage costs or, for that matter, Missouri workers heading to Illinois for better pay.”

Buschmann said she did not have immediate access to evidence of business migration based on wage imbalance. However, she emphasized the concept stands to reason, considering business leaders’ close scrutiny of all costs.

Bob Davis, owner of Springfield-based DomesticAide Inc., a commercial and residential cleaning service, said he’s working in an increasingly competitive environment, and  is in no position to recoup rising costs by raising prices. “If the economy improves to the point where a business can pass costs on to their customers, then it won’t have much of an effect,” Davis said. “If it’s an automatic increase that goes into effect regardless of the realities of the business world, that’s another story.”

Granich said the indexing feature strengthens the state’s economy by protecting the buying power of its lowest paid workers.

Buschmann, at the state chamber, said that’s not the government’s function.

“Missouri employers who are taking the risks to run businesses and provide jobs – and facing market challenges every day to meet those so they can keep their doors open – have the right and are in the better position to set labor rates than government,” she said.

Wage creep
Inflation adjustments hurt the economy when it’s already struggling, said Bob Bonney, CEO of the Missouri Restaurant Association. Eateries, which employ about 11 percent of the state’s workforce, are considering price increases across the board.

“Due to the formula, the minimum wage can go up with no corresponding increase in employers’ ability to pay,” Bonney said.

Local employers say they try to start or raise workers’ pay above the minimum whenever possible, but the Jan. 1 increase, coupled with “fiscal cliff” concerns and implications from the Affordable Care Act, could mean greater economic concerns for business owners.

Bair’s All-American Sports Grill owner Tim Bair, who operates two locations in Springfield and one in Republic, said his business can stomach the 1.4 percent increase on Jan. 1, but he recalls earlier troubles with the law.

He said the 26 percent wage spike in 2007, when minimum hourly wages increased by $1.35 to $6.50, was the year he opened his first location, and he has since kept a close eye on labor costs. “It made me take a look at things,” Bair said. “Do I need to put that extra server on the floor? Do I need to send this cook home a little earlier?”

Bonney said tips usually push servers’ earnings well above the minimum, and raising the wage floor can only stress employers, potentially to the point where they might reduce service staff, such as Bair’s case, where he began cooking and his wife waiting tables. Of the 70 to 80 total employees at Bair’s All-American Sports Grill, roughly 50 earn the service minimum wage, which is half the regular minimum, with the expectation of tips providing the other half.

Bonney said raising labor costs could also force operational changes in restaurants, from full-service to limited-service models, where customers order and pick up food at a counter and bus their own tables.

Another ramification for businesses, an increase in the minimum wage can lead to pressure for wage increases at higher levels, said Dave Dothage, CEO of Harter House grocery stores in Springfield, where most of the nearly 75 employees at each store earn above the minimum wage.

“I’ve heard employees make conversation, ‘Am I going to get a raise since the minimum wage went up?’” he said. “Dissatisfaction may lead to some employees leaving.”