Minimum wage hike may have drawbacks

ImageA raise for the nation’s lowest earners has some support, but an increase may not have the intended effect of lowering the poverty rates.

Some businesses, economists and even workers question the effectiveness of a minimum wage increase.

Most everyone at Great Harvest Bread in De Pere earns more than the minimum wage, but with an increase of $1.75 an hour being proposed by the Obama administration, that probably would not be the case, said Brent Felchlin, manager of the bakery at 802 George St.

An increase would force him to “metaphorically tighten the labor belt to the tightest notch,” he said. “We’d be pushing people to do the best work they can as fast as they can, with an in-and-out philosophy. Labor is one of the things that can make or break a business.”

Many of his workers are younger and work part time. Raising their wages is feasible, but Felchlin said he would also would need to increase the rest of his employees’ wages to ensure their experience is rewarded. His prices would ultimately raise, and without wage increases across the board, in other industries and levels, he is nervous he may lose customers.

“People may not be able to fit (our product) into their budget,” he said. “I’m fearful they may be pushed from the mom and pop shops. We’re a small industry, driven by lower pay scale employees, and I’m fearful (customers) would do more Walmart shopping if small shops have to raise prices.”

President Barack Obama suggested during his State of the Union address raising the federal minimum wage from $7.25 to $9 an hour. The move would be made in stages by 2015. After that, it would be attached to inflation. The White House estimates 15 million workers would be affected by the change.

The proposal is viewed favorably by the public. A USA TODAY/Pew Research Center poll found 71 percent of Americans, with a margin of error of 3 percentage points, favor the plan, 26 percent of polltakers said they were not in favor.

Some of the country’s lowest wage-earners don’t support an increase. Although Tierany Rugg would earn a bigger paycheck, the University Wisconsin-Green Bay student who works for the university said it wouldn’t come with extra spending power.

“Minimum wage goes up, gas goes up, groceries go up … the cost of living would be increased,” Rugg said.

But an increase would boost employee morale, Felchin said.

“Overall, though, a minimum wage increase would be a good thing,” he said. “I’ve worked minimum wage jobs, and it’s nice to have a little extra money in your pocket. I just worry about how to balance the business.”

The last minimum wage increase took place in 2009, and Felchin said it was initially a struggle.

“For a while, we lost money the first couple months,” he said. “We were not as prepared for it, and didn’t see it coming as soon as we could have. It took a few months before we realized we’d need to raise prices and cut back on labor.”

Thomas Nesslein, UW-Green Bay economics professor, said only one in 11 minimum wage workers is the head of a household, and a minimum wage increase has little effect on poverty levels because few of the working poor are affected.

“It’s really kind of sad that it’s not effective,” he said. “People focus on the wrong issue,” he said. “If you raise the minimum wage above the going market wage, the lowest productivity workers will lose their jobs or have hours cut back.”

Many people living below the federal poverty level, which is $23,550 for a family of four, are not working and would therefore be unaffected by a minimum wage increase.

In Wisconsin, 4.6 percent of workers earn wages at or below the minimum, according to the U.S. Bureau of Labor Statistics. Nationwide, 5.2 percent of workers are paid at that rate, but half of minimum wage workers are younger than 25. Two-thirds of minimum wage jobs are part-time, with less than 35 hours a week.

“Minimum wage is poorly targeted, it’s a policy that just doesn’t help poor people, or helps them hardly at all,” Nesslein said. “Raising the minimum wage is not an effective anti-poverty policy, it is not good economics, especially for a sluggish economy.”

A targeted tax credit, such as the Earned Income Tax Credit, which affects individuals in different ways, would be more effective, Nesslein said. He said minimum wage workers are typically secondary — teenagers or those who also earn money from another job.

“Even though with the minimum wage, there’s no direct government expenditure, it’s also totally ineffective,” he said.

Rick Austin, owner of Austin’s Grocery at 3823 S. Webster Ave., said most of his 60 employees are high school students, but some employees have been with the store for decades. He said he is concerned about higher prices for consumers, but also fairness among employees. An increase in minimum wage amounts to a raise for his least experienced workers.

“If you were an employee … at $3 an hour or something, they’ve earned their way up,” he said. “I can’t give everyone a 20 percent raise, and how do I rectify that to employees that have been there this long? I have no answer for you, but just can’t sustain a 20 percent increase in wages like that. I owe them my loyalty, just as they’ve given me theirs.”

U.S. Rep. Reid Ribble, R-Sherwood, said jobs are lost when minimum wage is increased.

“Small businesses often operate on tight budgets, and a sudden increase in the minimum wage can be unworkable for them,” he said. “These organizations have set budgets and a sudden increase in labor costs will leave them no choice but to lay off people or to freeze hiring.”

—initially published March, 2013 in the Green Bay Press-Gazette

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