Upping Theminimum Wage

Small business bust or low-income boost?

Businesses surviving on slim profit margins have another uncertainty to factor in to bottom-line projections. The U.S. Senate is expected to vote on legislation sponsored by Sen. Edward M. Kennedy (D-Mass.) that would raise the federal minimum wage from $5.15 per hour to $5.85 within 60 days of passage of the bill, then increase to $6.45 by 2005 and $7 by 2006. It would be the first federal minimum wage hike since 1997, affecting an estimated 7.4 million workers.

Routine increases in the minimum wage help alleviate discrimination against women and minorities, according to the Economic Polity Institute. Still, organizations such as the U.S. Chamber of Commerce and National Federation of Independent Business Owners continue to lobby against wage hikes, arguing that hikes increase the cost of doing business. Service sectors such as restaurants and hotels, where lower-paying jobs abound, are likely to feel the most heat.

The fast-food industry has entry-level positions where inexperienced youth develop job skills. Minimum wage increases will cramp a restaurant’s ability to “over hire” to compensate for the inefficiencies of this training mode, says Valerie Daniels-Carter, founder and CEO of Milwaukee-based V&J Holding Co. Inc. (No. 38 on the BE INDUSTRIAL/ SERVICE 100 list with $90 million in sales). V&J has very low turnover of its 3,500 Burger King and Pizza Hut staff. “We won’t feel the shock the same way as a smaller operator that … has been in business for only a few years. You have enough small businesses that are on the bubble anyway, and for them to try to absorb a 35% increase in their labor line really is going to cause some businesses to fall out,” says Daniels-Carter.

Jim Manley, Sen. Kennedy’s press secretary, says 11 million new jobs were added after the last minimum wage increase. “History shows that raising the minimum wage has not had any negative effect on jobs, employment, or inflation,” he adds. To the contrary, the Employment Policies Institute reports that 645,000 low-paying, entry-level jobs were lost as a result of the 50 cent wage hike in 1996.

Cecilia A. Conrad, a member of the BLACK ENTERPRISE Board of Economists and an economics professor at Pomona College in Claremont, California, says any negative effects of a minimum wage increase would be small. She anticipates little or no job loss and only slight price rises. “We have to sort of balance those against the potential positive benefits in terms of improvements in the standard of living for working families, particularly those headed by single mothers, which are the group that tends to benefit from minimum wage increases,” says Conrad. “If a business is located in an inner-city community, there really is a kind of trade-off for them between potentially higher costs, but also customers with more dollars to spend.”

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