President Obama’s proposal to raise the federal minimum wage to $9 an hour would inflate labor costs in Maine, where minimum-wage jobs in the service sector help to fuel the state’s biggest industry – tourism.
The proposal, which Obama raised during his State of the Union address Tuesday, is opposed by many small-business owners and business associations, which argue that raising the minimum wage would discourage employers from hiring more workers and force them to pass the cost onto consumers.
But the overall benefit of higher wages could give the state’s economy a boost, some economists said, as people earn more money to spend on goods and services and the gap between the highest and lowest wage-earners begins to close.
“Raising the minimum wage to $9 an hour would be a boost for the economy that is still recovering and put money in the pockets of families that are struggling,” said Joel Johnson, a policy analyst at the Maine Center for Economic Policy. “People will still be struggling to meet basic needs at $9 an hour.”
The last increase in the federal minimum wage was signed into law by President George W. Bush. It increased from $5.15 to $7.25 in a three-step process from 2007 to 2009.
Maine’s current minimum wage is $7.50 an hour, higher than the federal minimum. Full-time minimum-wage workers in Maine earn $300 a week, $15,600 a year, based on eight-hour days and a 260-day work year.
Per capita annual income in Maine was $26,195 in 2011, while the federal poverty level for 2012 was $23,050 for a family of four.
About 20 percent of Maine workers are employed in traditionally low-paying sectors such as food service, personal care and retail sales.
According to the Bureau of Labor Statistics, 14,000 Mainers were paid at or below the federal minimum wage in 2011. Many employees who receive tips, such as servers in restaurants, earn less than minimum wage.
“Raising the minimum wage would be a tremendous boost for those people,” Johnson said.
Opponents of Obama’s proposal say that raising the federal rate to $9 an hour would prevent employers from hiring more workers.
“It hurts the people they intend to help,” said Jake Wolterbeek, owner of Jake’s Seafood in Wells. “The minimum wage allows us to hire entry-level workers, such as students looking for their first job, who need training. It makes it difficult to hire them if they aren’t providing value.”
He said that if the minimum wage goes to $9 an hour, “Any employee now making $9 will probably need to get a raise. There will be a ripple effect all through the whole pay scale.”
Jake’s Seafood employs about 10 to 12 workers year-round, and about 35 in the summer.
“We’ve got kids coming back here every summer for a job, and it would kill me to tell anyone that I couldn’t hire them back,” Wolterbeek said. “Plus, what does any business do when costs go up? You raise prices, and that’s not good for anyone.”
Dick Grotton, president and CEO of the Maine Restaurant Association, said every 50-cent increase in hourly wages costs the average restaurant $12,000 to $15,000 a year in additional labor costs. Restaurants would have to raise prices to offset those costs, he said.
“You can’t pay someone $9 an hour to scoop ice cream unless you want to pay $6 for an ice cream cone,” Grotton said.
Not all employers oppose increasing the minimum wage.
“Raising the minimum wage doesn’t necessarily mean we’d cut anyone’s hours or job,” said Colleen Callahan, a manager at Kamasouptra in Portland. “Personally, I think it’s a good thing. I think it should be $12 an hour. You can’t do anything on minimum wage.”
Callahan said the increase likely wouldn’t hurt Kamasouptra, which has restaurants in Portland’s Public Market House and the Maine Mall in South Portland, because many of its workers already earn close to $9 an hour.
The Maine Innkeepers Association said it opposes any increase in the minimum wage because it would cause wage inflation and prompt other workers to demand more, said Greg Dugal, executive director of the association.
Some businesses might have to hire fewer workers or pay overtime to avoid adding to their labor force, said Grotton, with the restaurant association.
There’s little proof to support those fears, economists said.
A major study in 1994 by labor economists David Card and Alan Krueger showed that a rise in New Jersey’s minimum wage did not reduce employment levels in the fast-food industry. Krueger is now chairman of the White House Council of Economic Advisers.
Unions voiced support for Obama’s proposal.
“A surefire way to rebuild our economy and spur job creation is to put more money in people’s pockets by raising and indexing the minimum wage,” said Maine AFL-CIO President Don Berry in a prepared statement. “The Maine AFL-CIO applauds this move by the President and fully supports raising the minimum wage and tying it to the cost of living, which will jump start our economy and improve the lives of millions of hard-working women and men.”
Jessica Hall can be contacted at 791-6316 or at: