Businesses brace for minimum wage impacts

Rep. Ryan Winkler, DFL-Golden Valley: “For a lot of workers, this will be the first 75-cent pay raise they’ve seen in a long time.” (file photo)

The state minimum wage increase that took effect Friday raised the pay of the state’s lowest-earning workers by 75 cents an hour, but that increase is bigger than it seems, says JoAnne Schaber, co-owner of Rudy’s Redeye Grill in White Bear Lake.

The restaurant and attached Best Western Plus White Bear Country Inn, owned by Bill Foussard, employ about 220 people. About three-quarters of the staff will see a pay increase.

“I realize 75 cents doesn’t sound like a lot,” Schaber said. “But then you multiply it by as many employees as we have and as many hours, and it adds up.”

Schaber’s worry is common among businesses as the state’s first minimum wage hike since 2005 takes effect. But recent analyses of minimum wage increases in the nation haven’t found significant impacts on businesses.

Minnesota’s minimum wage has been $6.15 an hour for large employers and $5.25 an hour for small employers, although the $7.25-an-hour federal standard applied for most workers.

The new state law creates a five-tiered system that ramps up the minimum wage over the next three years. The law initially sets an $8 floor for employers with more than $500,000 in gross sales. The minimum wage climbs to $9 a year later then to $9.50 a year after that. In 2018, it will be indexed to inflation.

“For a lot of workers, this will be the first 75-cent pay raise they’ve seen in a long time,” said state Rep. Ryan Winkler, DFL-Golden Valley, one of the proposal’s major supporters.

The minimum wage for employers with less than $500,000 in gross sales will be $6.50 in 2014, $7.25 in 2015 and $7.75 in 2016. Workers younger than 18 and new employees will have the same minimum wage. Employees here on non-immigrant visas will have a $7.25 minimum wage in 2014 that will grow by 25 cents in 2015 and in 2016.

House Majority Leader Erin Murphy, DFL-St. Paul, said the business community’s worries are overblown. “I think this debate recycles every time we have a conversation about the minimum wage, and I think every time it’s proven false,” she said.

A March survey of minimum wage studies by the University of California, Berkeley didn’t find any analyses that had uncovered “statistically significant negative effects on employment or hours” arising from state and federal minimum wage increases. The three “rigorous” studies of local minimum wage laws didn’t find any negative effects on hiring either.

For restaurants, a 10 percent minimum wage increase boosts operating costs by 1 percent to 2 percent, according to the survey. The restaurant industry also raised prices by about 0.7 percent after a 10 percent minimum wage increase and 2 percent to 3 percent after a 25 percent increase.

“Almost every time government comes in and does something good for workers, we hear the same doom and gloom from the same people,” said Chris Shields, communications director for the Minnesota AFL-CIO.

But workers who make more than minimum wage will want more money, too, Schaber said.

The increase will help in contract negotiations, acknowledged Lance Lindeman, business manager for Office and Professional Employees International Union, Local 12. Although the union’s 2,800 members make more than minimum wage, Lindeman expects that they’ll argue the floor has been raised and their wages need to keep pace with that. Winkler thinks workers already making the new minimum could see their pay grow.

Stores and restaurants could try to combat this by moving more quickly to replace workers with automated ordering, such as tablets and kiosks, warned Ben Gerber, manager of energy and labor/management policy for the Minnesota Chamber of Commerce.

Winkler countered that automation would happen anyway — the higher minimum wage simply allows workers to benefit from the productivity gains.

Restaurants have attracted particular attention because of their reliance on tipped workers who often make more than minimum wage once tips are taken into account. Minnesota is one of just seven states that do not credit tips toward the minimum wage that employers must pay, said former Republican legislator Dan McElroy, the president and CEO of Hospitality Minnesota.

Sit-down restaurants could eliminate server positions by taking orders at the counter, turning $25-an-hour server jobs to $10-an-hour jobs at fast casual restaurants, said McElroy, a former state commissioner of employment and economic development.

Hospitality Minnesota wants a sixth tier for tipped employees that would allow companies to pay tipped employees the federal minimum wage of $7.25 if they average at least $12 per hour in wages and tips combined. If the workers didn’t make that much, employers would have to pay them Minnesota’s new minimum wage.

Hospitality Minnesota will return to the Legislature in 2015 to ask for an additional tier for tipped employees, McElroy said. In the near term, he expects restaurants to raise prices a bit, give more tables to each server and reduce hours slightly.

Schaber said there’s a limit to the costs her restaurant can absorb.

“We sell a lot of hamburgers. How many hamburgers are you going to sell for $15?” Schaber said. “What’s going to happen is people just stop coming.”