Minimum wage hike may harm as much as help
Published 5:00 am Friday, July 24, 2009
Though it is meant to pump up the wallets of many Americanlaborers, Friday’s 70-cent increase in the federal minimum wagehourly rate could cause a spike in unemployment and slight the verypeople it was intended to help, some area business officialscontend.
Small, privately owned businesses don’t need added expensesduring the current economic downturn, and growing payrolls willhave to be countered by decreasing workforces or increased productprices – with the former option more likely, said localbusinessmen.
“There’s only a certain amount of payroll you can afford,” saidRusty Adcock, owner of Brookhaven’s Rusty’s Family Restaurant. “Wecan’t keep going up on prices in proportion to wage increases – themarket just won’t stand it.”
The federal minimum wage level increased Friday to $7.25 perhour, but Adcock began paying his minimum wage earners the newamount at the beginning of July.
After one month of the increased wages, he said his profits havetaken a hit, and there is little he can do to recover. With theeconomy encouraging many people to avoid dining out and cook athome to save money, increasing the price of meals at Rusty’s wouldonly further reduce the customer base, he said.
Adcock also complained the federally mandated increase killscompetition in the workplace. He said his employees always startlow and earn their way to higher wages.
“If an employee wants to make their way, they’re going to workharder and an employer is going to increase their pay,” he said.”Work is a privilege. (Friday), a minimum wage earner will get a70-cent raise for doing nothing, while a veteran cook in therestaurant will get nothing. What’s fair about that?”
Since they are able to receive tips, waitresses are governed bya different pay scale. But cooks and other restaurant workers arecovered by wage laws.
Fish Fry owner Wayne Boyte called the minimum wage increase ahidden tax, pointing out that insurance, workman’s comp and SocialSecurity contributions will also increase alongside wages. Heexpects the increase to cost his business around $250 per week inprofits and to increase his insurance premiums by $1,000 peryear.
As business owners like Adcock and Boyte struggle to pay theextra wages, the only option could be to terminate some positions.In Southwest Mississippi, the dilemma affects far more than justthe food service industry.
“Mississippi is 50th in terms of per capita income, so you haveto guess we have lots and lots of minimum wage workers,” said MikeMcIntyre, chairman of the Business Division as Copiah-LincolnCommunity College. “It will be great news for those people who canstill be employed, but bad news for those who could lose theirjob.”
Increases in minimum wage are traditionally met with temporarylayoffs, McIntyre said, and it takes time for those jobs to berestored. Unemployment in the country currently stands at around9.5 percent, he said, and more layoffs are not what the economyneeds.
“With the minimum wage going up, that’s sort ofcounter-productive,” McIntyre said. “I know it would be better forthe workers to get a higher wage rate, but it’s actually going tocause that unemployment rate to rise, and we want to be going inthe other direction. It’s probably a bad time to do that.”
The minimum wage increase could also cause product prices toincrease, McIntyre said. He said most of the price a consumer paysfor any product is to cover the costs of wages and salaries, andthe minimum wage level has a large effect on those prices.
“That’s why it’s hard for us to compete as a country when itcomes to cheap labor,” he said. “We don’t have cheap labor becausethe government puts that floor under labor.”
The increase does have a good side, McIntyre said.
Though it hurts business owners, without minimum wage levels, noone would make any money, he said. Increases to minimum wage areone way the American government, in the country’s mixed capitalismeconomy, encourages employment, stabilizes prices and promoteseconomic growth.
“If there’s no minimum wage, that wage rate is going to beextremely low if you don’t have a lot of competition betweenbusinesses,” McIntyre said. “The owners of those businessescontrolling those markets become fabulously rich, set theconditions and the laborers will be earning close to subsistencewages. One of the reasons the government sets a minimum wage is toboost the incomes on that end of the scale – to make the poor alittle less poorer.”