In his recent State of the Union address, President Obama proposed a startling and swift raise of the national minimum wage. He presented his plans to implement a 24% increase of $1.75 per hour, bringing minimum wage from $7.25 to $9.00. The change would take full effect in 2015, which many feel is too much too soon for low-margin businesses to be able to adapt. "You take that kind of increase and you are going to see some reaction, some layoffs, some increases in inflation," Bob Gorland, an expert who specializes in supermarket and retail center feasibility studies and vice president in the Harrisburg office of Matthew P. Casey and Associates, said in response to the president’s proposal.
Small business owner Ron Taylor predicted his business would not be able to maintain its current staff if the change goes through. "It would probably result in less manpower hours," Taylor said, explaining that if the minimum wage goes up, the number of people he employs could go down. “It's one of the things that as small business owners we hate to do because we have relationships with these people, but from our standpoint it's a matter of survival.” Most of minimum wage employees are college students. He fears that letting them go would compromise the level of customer service his customers expect.
While the number of layoffs increases, the amount of available jobs decreases. Fewer stores will open, and existing businesses will have to find creative ways to cover the cost of maintaining their current workforce. "When you raise the minimum wage a lot of employers at these entry levels don't do as much hiring, so simply just mandating something from Washington again to the private sector doesn't solve our problem," U.S. Senator Dan Coats said. Pennsylvania Chamber of Business and Industry Spokeswoman Lesley Smith agrees, "A minimum wage increase would fall hard on small businesses that continue to struggle in this economy and that still face uncertainty about what it is going to cost to operate their business moving forward." Even large companies are concerned about the pending proposal and are reacting to the wage hike already. The CEO of J.C. Penney, Ron Johnson, announced that he plans to eliminate traditional checkout methods in an attempt to decrease the cost of labor.
As minimum wage increases, retailers will need to cover the increases in labor costs with price increases. "It would be offset with some slightly higher pricing to pay for it," Gorland said. “Whether it be at a grocery store or a pharmacy. If retailers need to tweak their pricing to reflect the higher cost, that would affect the consumers." Consumers will be the ones stuck paying at least part of the bill for raising the minimum.
John Holub, president of the New Jersey Retail Merchants Association, told NJ Biz that raising the pay of the lowest-wage workers will have a ripple effect, putting pressure on employers to raise pay for workers higher on the pay scale. Smith explains, "Businesses understand that in order to attract quality workers, they need to offer competitive wages. The problem with government mandated wages is that they do not consider whether a business can afford to pay that wage.” For some businesses that may not be possible and people working just above the current minimum wage in companies already spread thin by the economy most likely won’t see raises.
Teacher Jevon Ford warns of employee layoffs and higher costs for consumers if the rate is hiked. Ford argues, “Historically speaking, the minimum wage was not created to be a basis for middle class living, but to make sure that minorities, women and young workers were being paid a fair wage.” Smith surmises her fear that “less-skilled workers, some of the very people supporters of mandated wages say they want to help, would be harmed the most."
Image courtesy of BlackChip Solutions
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