Business owners fearfull of being Berned by minimum wage increase

Many young Americans have been endeared to Senator Bernie Sanders’ presidential bid due to his plans to raise the federal minimum wage from $7.25 to $15 across five years.8042367_g

“We must ensure that no full-time worker lives in poverty,” his campaign website reads. “The current federal minimum wage is starvation pay and must become a living wage. We must increase it to $15 an hour over the next several years.”

Some cities and states have already approved plans to increase the wage floor to $15, including New York state, Los Angeles, San Francisco and Seattle. All have costs of living far higher than the national average.

The Fair Labor Standards Act of 1938 that established minimum wage did so with the intention of it not raising inflation or reducing employment. However, since 1968, the minimum wage has lost purchasing power. If the wage had kept pace with inflation, the rate would stand at $10.70 rather than $7.25 according to Jeff Musto in his paper Lost Wages, released by Ralph Nader’s Center for Responsive Law.

There is little debate that the federal minimum is far too little to be the living wage that Bernie Sanders wants it to be. The National Low Income Housing Coalition reported that the average American needed to earn an hourly wage $19.35 to afford a two-bedroom apartment without spending more than 30 percent of their income. That is to say, a minimum wage earner can’t afford to support a family on that income.

Even in states that have accounted for a higher cost of living by raising the minimum wage, such as California, the situation is no better for minimum wage workers. The coalition also reports that in no state can an average American afford a one-bedroom apartment working 40 hours a week at minimum wage.

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Sanders isn’t the only presidential candidate concerned for low-wage workers advancing in the workforce. Candidates on both sides of the aisle mention growing jobs and helping workers in some way on their campaign websites. However, there is no consensus on the best way to help the young and impoverished find a way to better work.

While the young people and minimum wage workers might favor the proposed shift towards a higher minimum wage, many business owners are afraid of the potential drawbacks on their business.

Jeff Ender, owner of Milano Brother’s Pizza in Hemet, California, raised the same concerns. The city is about even with the national cost of living according to AreaVibes.com, but Ender still pays the $10 California minimum wage rather than the $7.25 national minimum wage.

“We can either cut jobs—I don’t want to do that—or we can make portions smaller so you get less money for your food,” Ender said. “Or we can buy lower quality ingredients, but I refuse to do that because that is what’s gotten us 25 years of business. Or the third thing we can do is raise our prices.”

Ender said that the raise in California’s minimum wage from $9.00 to $10.00 has cost his business $4,000 extra every two week pay period.

“And now people who were perfectly happy making $10.00 before the increase want more,” Ender said.

While Ender’s employees might be getting the fortune of low cost of living in a state that has one of the nation’s highest, minimum wage workers in Azusa, California are not as lucky.

As of 2013, Azusa had a per capita income of $18,047, far below the national average of $29,527. Despite the depressed earnings, the city’s proximity to Los Angeles raised the cost of living to 26 percent higher than the national average. The biggest factor in this is housing, where Azusans pay 69 percent more than the average American.

“We can barely afford to make rent,” said Scott Wilkerson, who lives in a studio apartment with his girlfriend, Jessica Rocha, in Azusa. The couple pays $950 a month for roughly 425 square feet.

Wilkerson is on disability after injuring his back at work, while Rocha works at a restaurant for minimum wage.

“I want to go to school to become a nursing aide,” Rocha said, “but we would have no other way of making ends meet if I didn’t work, and I can’t get my work to coordinate a schedule with taking classes.”

Steve Castro, CEO of the Azusa Chamber of Commerce, expressed concerns that local business and restaurants would take the hardest hit from the raise.

“They’re either going to have to increase the price of their food or lay people off,” Castro said. “Neither one is good.”

Other small business owners in the community share his concern. Don Hiti, owner of Canyon City Barbeque fears that it will do more harm than good.

“People think it’s going to increase the wage of everybody, but I think it would lead to lost jobs. People still have to be profitable,” Hiti said. “If your labor costs go up 25 to 30 percent, I don’t believe there’s that much profit in any business to absorb that.”

Opponents of the hike tend to draw back to a singular point: minimum wage was never meant to be a long-term career path.

“It used to be that fast food was an entry-level job and people that went there knew that,” Castro said. “People say, ‘You can’t raise a family working at McDonalds.’ Well that was never the intent.”

“It wasn’t meant to raise a family on,” Ender said. “They were meant to give someone their first job, so they could learn work ethic and see what it’s like to put some money away.”

As much as business owners have come to resent the call for a huge increase in minimum wage, the young and impoverished have latched onto it for hope for a better life.

Many young people from low-income backgrounds find themselves disadvantaged in attaining a college degree. Just one in 10 earned a degree by age 25, compared to five-in-10 of those with a high-income background according to a White House report.

Daniel Flaming, president of economicroundtable.org, a nonprofit urban research organization, fleshed out the effect that raising the minimum wage to $15 would have in Los Angeles in a report.

He argued that in order to meet the $7.6 billion needed to bump low-wage earners to $15 in Los Angeles, only four percent of overall revenue would need to be diverted from other areas into wages.

However, restaurants and the service industry would be hit harder, needing to reallocate 14 percent of revenue.

Restaurants operate on razor-thin profit margins that fluctuated between 0.4 percent and 5.1 percent from 2008 to 2013, according to Sageworks, a financial information company.

It’s easy to see why restaurant owners like Ender and Hiti are afraid of the 14 percent required to meet a $15 minimum wage: the amount would eat well through their profit.  The owners would need to find significant cuts in order cover the increase in labor cost that an increased minimum wage would bring.

However, Flaming also noted ways in which the local economy would benefit from the increase in wages

“Businesses will benefit from having more money spent in the local economy. Businesses will benefit from having a higher-paid labor force that is more stably housed, reducing employee turnover and the associated costs for recruiting and training new employees. It costs an estimated 30 percent of a worker’s annual salary to replace that worker, so reducing the frequency of worker turnover results in significant cost savings for employers.”

However, the exact results are hard to nail down.

“The right answer is we don’t know, and it’s not exact science,” Chris Tilly, a labor economist at the University of California, Los Angeles, told Bloomberg BNA.

Tilly was one of more than 200 economists who signed a letter supporting a $15 minimum wage published my Univeristy of Massachusetts – Amherst.

In any election, the economy and economic policy is a popular debate point. Bernie Sanders and his economic plan have young voters overwhelming supporting the Vermont senator. In the Iowa Caucus, he received 84 percent of the vote to just 14 for Hilary amongst 17-29-year-olds.

What remains unclear is what the actual result of the increase in minimum wage would be. Business owners are afraid that the cost is too high. Ender already caps his work force at 25 to avoid a higher tax bracket. He sees a $15 wage as the government further hindering business.

“My good employees have never had to ask me for a raise,” Ender said.

For Sanders supporters, the hope remains that an increase to a living wage would make life more affordable, freeing them for minimum and low-wage jobs to pursue routes to better work.

“We just want to be able to live,” Wilkerson said.

 

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