Two Sides of How Businesses are Dealing With Minimum Wage Increases

The Wall Street Journal has a pretty even-handed examination of how increases in the minimum wage has affected businesses in various cities across the U.S., focusing on San Jose, Calif. where locals voted to increase the minimum wage to $10.15/hour in 2012:

The Pizza My Heart chain raised menu prices 4%, to cover last year’s $2 increase in the city’s minimum wage — now $10.15 hour — and found that larger paychecks reduced employee turnover and drew transfer requests from workers in other cities.

“There was a lot of bluster that higher wages meant the sky was falling,” said owner Chuck Hammers, whose sales at five San Jose locations are up more than 10% since the wage change. “I stepped back and realized that as long as it is an even playing field, it’s not going to affect us.”

On the flip side:

The local increases create difficult adjustments for other businesses. Woody DeMayo, owner of 16 Carl’s Jr. restaurants in northern California, charges $6.19 for a burger, fry and drink combo in San Jose, but $5.99 in Santa Clara.

For his San Jose stores to make the same profit as before the wage increase, the same combo meal would be $6.75. “That would chase off a large percentage of my customers,” Mr. DeMayo said. He hasn’t laid off San Jose workers but has reduced their hours, along with some maintenance such as the drive-through lane’s daily hosing, and may close two unprofitable stores.

The reaction among San Jose employers was largely in line with a study of 288 areas where the minimum wage differed across county borders. The research, published in the Review of Economics and Statistics in 2010, found municipalities with higher pay didn’t suffer job losses among low-wage restaurant workers. Nearly half of all minimum wage-earners work in food service.

In February the Congressional Budget Office estimated that “a $10.10 minimum wage would cut employment by 500,000 workers by 2016,” but would also “lift about 900,000 people out of poverty.”

Photo: Wonderlane

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