Will minimum wage increases hurt Mo.?

The talking points come in waves. In recent years, protests at McDonald’s and other restaurants have garnered national attention before fading behind the news of the day.

In February, President Barack Obama proposed a federal minimum wage increase to $10.10 an hour, fanning the flames of debate. But the bill never made it out of the Senate.

New protests sprung up later in the summer and again around Labor Day. Weeks ahead of midterm elections, the talk has waned, but Seattle is phasing in a $15 hourly minimum wage, and in Chicago next month voters will decide if they, too, will welcome a $15 an hour threshold.

Closer to home, Arkansas’ ballots on Nov. 4 will ask for a minimum-wage increase to $8.50 an hour by January 2017. While there are no U.S. Senate races or related ballot issues in Missouri this year, changes in the House and Senate across the country could alter the balance of political power and influence minimum wage activity.

As for the impact a large hike could have on businesses, economists disagree.

A February report by the nonpartisan Congressional Budget Office found that Obama’s proposal to increase the federal minimum wage nearly $3 an hour from the current $7.25 would result in an estimated 500,000 job losses. The same report said the hike long-stalled in the Senate could lift nearly 1 million Americans out of poverty. In either case, leadership in the Republican-controlled House has vowed opposition.

One national economist who visited Springfield recently said such proposed increases could be particularly harmful for Missouri, where the minimum bumped 15 cents an hour Jan. 1 to $7.50 and is expected to rise again to $7.65 next year.

Missouri State University economist David Mitchell agrees.

“It’s not like we’re talking about it going up a quarter. (The president) is talking about significant increases in costs here,” said Mitchell, director of MSU’s Bureau of Economic Research, noting a hike to $10.10 an hour would only hurt those it is designed to help. “That’s going to impact local businesses. Interestingly enough, that’s going to make the people who are earning $9 an hour go up, too. The people who are earning $15 an hour right now are going to want a raise, too.”

National economist Elliott Eisenberg, who visited Springfield in September for the Home Builders Association of Greater Springfield’s 2014 outlook conference, said after an attendee asked him that he thought raising the minimum could be particularly harmful to Missouri.

“One of the advantages you have over New York or Seattle is that wages there already are at 13 bucks an hour. … The advantage you have is you’re a low-cost town for employment. But if we’re all 13 bucks an hour, we’ll let’s just go to San Francisco and enjoy the nightlife,” Eisenberg said, adding many employers would have to pass costs down the line.

However, a 2014 economic report published by the Harvard Business Review indicates companies that compensate employees well are able to remain among cost leaders in market segments. In the report, Why “Good Jobs” Are Good for Retailers, author Zeynep Ton dispels the myth that low wages always support the bottom line.

“Highly successful retail chains – such as QuickTrip convenience stores, Mercadona and Trader Joe’s supermarkets, and Costco wholesale clubs – not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance and better customer service than their competitors,” Ton said in the study.

In the retail-focused study, Ton noted employers choose to keep wages low for many workers because often is labor the largest controllable expense. But some retailers, such as Home Depot, have suffered from their own trimming decisions.  

In 2000, when Home Depot CEO Robert Nardelli in 2000 cut staffing levels and increased part-time employment, he achieved goals to reduce costs and boost profits. But the moves created unexpected long-term problems for the chain.

“Those moves achieved both goals immediately, but they eventually caused Home Depot’s excellence in customer service – the company’s claim to fame and, arguably, primary source of competitive advantage – to suffer, customer satisfaction to plunge and same-store sales growth to drop and even go negative in some years,” Ton said in his analysis.

Home Depot is not alone in tightening staff rolls. Some 41 percent of U.S. retailers work part-time and make 35 percent less than their full-time peers, according to Ton’s research.

MSU’s Mitchell argues many businesses targeted by protesters are in the fast-food industry, and a forced increase in payroll expenses for such companies as McDonald’s could quickly prompt automated services.

“They could move to a system where you have a touch screen and you order from there,” Mitchell said. “People think, ‘Well, I work 30 hours a week at 7 bucks an hour, and I could be working 30 hours a week at 10 bucks an hour. That’s a huge raise.’ But, that’s unlikely to occur. (Employers) will simply cut back on hours, replace them or never hire them in the first place.”   

In the end, the debate may affect little change, according to Drury University political science professor Daniel Ponder.

Ponder said a large increase in the federal minimum wage is a long shot now, and such a move is even more unlikely after midterm elections. Ponder, who follows national politics, said Democrats could very well lose six seats in the Senate, changing the balance of power in the one half of Congress where support exists.

“It’s just an unlikely climate, right now,” Ponder said, adding it’s possible Republicans could change strategies as the 2016 elections approach.

He said raising the minimum wage often is popular with groups of voters they hope to appeal to, such as women and Hispanics. If anything happens, he said an increase would be more muted than the president’s proposal and phased in over time.

“I think that was a pie-in-the-sky notion,” Ponder said. “I think the president asked for more than he thought he could get, like when you ask your parents on prom night if you can stay out until 5 a.m.”