As wages rise, tough choices

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The Wall Street Journal
By: Sarah E. Needleman
December 1, 2011

Small businesses, already on a tight budget, are looking for new ways to cut costs as they brace for minimum wage increases in several U.S. states next month.

Strategies range from cutting back workers' hours, to replacing waiters with an automated ordering system.

Eight states including Arizona, Florida and Washington will require employers to pay non-salaried workers a minimum of 32 cents more per hour, on average, starting Jan. 1. While occasional increases to the minimum wage--which currently stands at $7.25 an hour nationally, but varies by state--are nothing new, the planned 2012 adjustments will hit many businesses at a time when profits are razor thin.

State Current minimum wage New minimum wage as of 1/1/11
Arizona $7.35 $7.65
Colorado $7.36 $7.64
Florida $7.31 $7.67
Montana $7.35 $7.65
Ohio $7.40 $7.70
Oregon $8.50 $8.80
Vermont $8.15 $8.46
Washington $8.67 $9.04

Source: U.S. Department of Labor

It's a big deal," says Skip Vallee, chairman and chief executive officer of R.L. Vallee Inc., a convenience-store chain with 60 locations in Vermont, New Hampshire and New York.

About half of R.L. Vallee's roughly 450 employees make the minimum wage--mostly entry-level cashiers, sales associates and inventory-control personnel. To cope with the wage increases in Vermont, the 69-year-old family business plans to cut employees' work hours in that state and is considering having employees there pay a larger share of the premiums for their employer-provided health insurance.

Legislators commonly recommend boosting the minimum wage to compensate for cost-of-living increases, and some research suggests that mandated wage increases don't necessarily result in job losses or reduced work hours.

There is no "evidence of any loss of employment or hours for the type of minimum-wage changes we have seen in the U.S. in the last 20 years," says Arindrajit Dube, a professor of economics at the University of Massachusetts Amherst. Earlier this year, Mr. Dube and two colleagues used government data to compare employment figures in counties that border states with different minimum wages.

If employers cut back on labor, it's generally due to poor economic conditions, not pay requirements, Mr. Dube says.

But opponents argue that minimum-wage increases do have unintended consequences. "When you raise the price of something, including entry-level labor, you're going to decrease demand for it," says Michael Saltsman, research fellow at the Employment Policies Institute, a nonprofit research group in Washington, D.C.

Some small-business owners who have relied on teenagers and other low-cost employees in recent years already have cut back significantly on staffing, forcing them to search for other options.

"At this point, we're staffed at about the lowest level we could possibly be staffed," says Albert F. Macre, co-founder of a restaurant in Steubenville, Ohio. Mr. Macre says he will have to cut back the hours his employees work. He also plans to spend less on window washings and other vendor services to help his 14-employee establishment, Triple Play Café, stay in the black.

Martin O'Dowd estimates a pending 36-cent increase in the minimum wage in Florida to $7.67 an hour will add up to more than $1 million in annual operating expenses for the 30 Hurricane Grill & Wings restaurants outlets he owns there.

He recently began investing in technology--an interactive menu--for some locations that lets patrons order meals by themselves from their tables. If it works out, he says, he'll be able to cut back on the number of servers he needs to hire.

"We have to be more efficient," says Amy Igloi, owner of Amy's on the Bay LLC, a steak and seafood restaurant in Port Orchard, Wash., where the minimum wage will rise 37 cents to $9.04, including for servers and others who normally receive tips. "There's not much room for error."

She had as many as 34 employees just a few years ago. Now, she plans to trim her 22 employees' work hours as much as possible.

Still, some entrepreneurs say they prefer not to pay minimum wage. Spencer Williams, president of Schoggi Inc.'s West Paw Design, says he came to this conclusion soon after he founded the pet-products manufacturer in Bozeman, Mont., in 1996.

Initially, he paid some plant workers the lowest wages possible. But when he later decided to give out raises that exceeded the minimum required, he says he gained a more loyal work force. Today his lowest-paid staffers earn $11 an hour. The minimum hourly wage that employers must pay in Montana will rise 30 cents to $7.65 next month. "Our turnover dramatically reduced and the engagement level from our employees rose," he says.

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This page contains a single entry by CFED published on December 5, 2011 7:22 PM.

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