Minimum wage increases again but impact up for debate

By Bob Stephens
January 5, 2018

Car wash

Controversy surrounded Colorado’s minimum wage increase even before it passed in the November 2016 election, and that hasn’t changed more than a year later as local business owners remain divided on the subject.

About 55 percent of Colorado voters were in favor of Amendment 70, which incrementally raises the state’s minimum wage from $8.31 in 2016 to $12 by 2020. The minimum wage in Colorado jumped to $9.30 in 2017 and to $10.20 Jan. 1. It goes up to $11.10 in 2019 before reaching the $12 cap the following year. The 2017 Federal Poverty Level for an individual is $12,060 in yearly income and $24,600 for a family of four. A minimum wage worker in Colorado will earn $21,216 in 2018.

Opponents of the minimum wage increase accused outside interests, notably national labor unions from beyond the state’s borders, of fueling support for the minimum wage hike in Colorado. Still, while some Coloradans warned that such a big increase would hurt small businesses and force the elimination of some low-paying jobs, others were supportive and said it would put more money in the pockets of those who need it most and help fuel a more robust economy.

Those arguments are still being put forth as business owners continue to argue the fundamental question of whether raising earnings for minimum wage workers helps the economy by giving about 400,000 Colorado families [according to a 2016 Denver University study] more discretionary income, or if it leads to price increases and hurts most household budgets.

“It’s killing small business. It’s killing us, and forced us to raise our prices to stay in business,” said Jim Mill, a 35-year employee who is general manager of Water Works Car Wash & Detail Center on South Nevada. “It’s affected our bottom line, and it’s tough for us to stay afloat.”

Etienne Hardre said he raised prices in early 2017 at his Locals Barbershop & Salon located in University Village Colorado on North Nevada. He also raised wages for his hourly employees and the commissions for his hairstylists.

“I thought it was only fair to raise what they get, since the minimum wage went up,” Hardre said. “The people [who earn] a little bit over the minimum wage are the ones who get hit the hardest, because a lot of businesses have to raise prices to make up the difference in labor cost. It’s the perfect example of passing it on to the taxpayer.”

Tracy duCharme has a different outlook on the minimum wage increase, arguing that a rising tide lifts all boats. Since 2009 she has owned Color Me Mine, a franchise store in Chapel Hills Mall where customers select and paint pottery. She has nine employees, a few of whom earn minimum wage while others make slightly more, including tips.

She’s part of the Colorado Business for a Fair Minimum Wage group and said, “I think it’s good for the business environment. My business won’t thrive unless the Colorado Springs economy is healthy and vibrant. My business is not an essential activity; it’s entertainment, a fun activity, and it’s not cheap, so it requires people having disposable income.”

Rather than raise prices in 2018, duCharme hopes to increase efficiency to offset increased labor costs.

“Every time I run payroll, it’s kind of a gut punch,” she said, “but I’m for low- and middle-income workers making more, and I think they spend those extra dollars locally.”

National trend
The minimum wage is increasing in 18 states in 2018. Increases in 10 of those states are part of a phased-in transition to reach a certain level, while eight will have annual cost-of-living index adjustments. Approximately 4.5 million workers in the United States will benefit from the wage increases, according to the Economic Policy Institute.

Holly Sklar, the CEO of Business for a Fair Minimum Wage in Massachusetts, says that’s good.

“Raising the minimum wage puts money in the pockets of workers who most need to spend it — boosting business and the economy from the bottom up,” she said. “Minimum wage increases also pay off in lower employee turnover, reduced hiring and training costs, lower error rates, increased productivity and better customer service.”

Mill said he has seen no change in employee turnover in the last year.

“It’s been tough to get new employees to come through the door, and I thought [the increase] would help with that,” he said. “I wondered last year if we should offer $10.50; now that’s about the minimum.”

Hardre said he’ll raise hourly wages for his employees again this year, but is still wondering whether to again raise prices and commissions for his stylists.

“It puts me in a tough situation,” he said. “My revenue went up last year but my profitability stayed the same. With labor costs going up again, we have to grow for this to work.”

The national minimum wage is set at $7.25, and has not increased since July 2009, and tipped employees may be paid at an even lower rate. For tipped employees — workers receiving more than $30 per month in tips — the minimum wage can be no less than $3.02 below the state minimum wage, so it’s currently $7.18 in Colorado.

“Our dishwashers are probably pretty happy about the increase but it doesn’t affect most of our people,” said John Michael Sanders, general manager at The Famous Steak House restaurant downtown. “Our hostesses, servers, bartenders and bussers are all at minimum wage but they make most of their money from tips. Overall, I could see some businesses and restaurants cutting people loose and unemployment going up.”

Sanders said his restaurant did raise prices in 2017 and the minimum wage increase “definitely played a part in it. We’ll reevaluate everything again with food and labor costs and see if we need to raise prices again.”

Sanders, who has a degree in economics, said low-wage workers won’t have more to spend in the long run.

“King Soopers might pay its employees more but that means they also probably have to raise prices, so ultimately people don’t have more to spend,” he said.

Tatiana Bailey, director of the UCCS Economic Forum, said there are pros and cons to the pay hikes.

“A higher minimum wage has a more positive impact, especially in a tight labor market,” she said. “So far, there hasn’t been an uptick in the unemployment rate, so the raise has probably been an asset because we do have a labor shortage. The way I see it is that Colorado Springs will definitely get more benefit than there will be a deleterious effect.”