My wife doesn’t think I should write this column and she’s probably right.
This week, I’m going to tackle a topic that most people are extremely passionate about. I urge you to read this with patience and an open mind. This topic is divisive because so many people want to help those living in poverty better their position and I do too. Yet, there are some unintended consequences that I want to lay out for you, so you know what some businesses are dealing with.
Citizens overwhelmingly support minimum wage increases; we saw that in 2016 when the state minimum wage went from $7.50 to $12.00 over four years. To be fair, even the business community is split on the issue of minimum wage increases so I can’t even say I speak for ‘the business community as a whole’ because the views are so divided. Some businesses have been profitable enough to build wage increases into their budgets that exceed the minimum, but others have not.
The issue is, the businesses who support increases are lauded and praised, but those who admit “these changes are difficult for me and my business model” are met with disdain, and that’s not good. We’re mandating these changes for all businesses, and if businesses say “this is hard for me,” they get labeled by some as lying, or greedy or that they don’t care about their workers, and that’s not right. Let me clear, I agree that people need a livable wage, but how we implement policy changes matters.
If we’re going to solve any major issues from wages, to climate change, to healthcare, to education, we need to start from a place where we believe and hear both sides. So with that in mind, here is a perspective, about how minimum wage increases affect some businesses.
To start, let’s first look at what got passed in Question 1 on the Portland city ballot, which is a $15 minimum wage in Portland by 2024 and hazard pay of time and a half when there is a state of emergency. A state of emergency designation is made by the governor in order to access state and federal funds and to streamline decision-making processes. We’ve been in a state of emergency since April due to COVID-19. Therefore, with a current minimum wage of $12 statewide, hazard pay will increase Portland’s minimum wage to $18 per hour when it takes effect in a few weeks.
To many supporters that seems great. as they often say, “living expenses are high and this wage increase means more money in the paychecks of hard-working Mainers.” But, it’s only more money in your paycheck if you work the same number of hours, as you did before the pay raise, or if you even have a job after the pay raise. Supporters of minimum wage increases draw a direct line between wage per hour and total wages and ignore the “per hour” part. We need to anticipate that when policy changes are mandated, that businesses will adjust what they do in order to afford the changes.
It’s a math problem. Payroll is a line item in a business budget just like inventory, building costs and marketing. If one line item is drastically changed they need to adjust their business model. Think about your personal budget, if one line item-say your rent- got increased by 50% over 30 days (which is what $12 per hour to $18 per hour is), how would you afford it? Honestly. If your share of rent went from $800 per month to $1,200 per month, where are you coming up with those extra $400 dollars each month? You have three choices: take it out of your savings, cut other expenses or make more income.
National brands have the reserves to absorb this, but your local businesses may not. If a business doesn’t have the extra money in savings they either need to cut expenses (meaning inventory, marketing, payroll hours) or make more income to cover this new cost. Proponents of wage increases say businesses can charge higher prices because people getting more wages can spend more. But do they?
The federal stimulus is a good example here of what people do with increased income. What did people do with their stimulus checks? Did they go out and buy new items and infuse that in the economy? Business sales wouldn’t indicate they did that. What seemed to happen is many people: paid living expenses, paid off old debt, caught up with outstanding debt or saved it for future living expenses they couldn’t afford because of COVID-19.
Which brings us to the other point: Time and a half during a state of emergency is great for the workers who are in harm’s way. But for the employers who are doing 30-50% less business, increasing their payroll by 50% over 30 days is too rapid of an increase to handle.
It doesn’t feel good to have to share this perspective because I genuinely believe the quickest way out of poverty is to make more money. However, it’s really important that everyone sees how some businesses are affected by this. For employees that stay employed at the same hours, this is a great change, but for those that don’t this could make it tougher for you. For a business owner who has to layoff employees because of this, it can be heartbreaking.
This isn’t an appeal to avoid having wage increases. I simply want to show that there are consequences that businesses face and we need to consider their voices too, because they’re the ones expected to pay. The Portland Regional Chamber, the Portland City Council and 60-plus businesses signed onto an appeal that tried to express these concerns prior to Election Day as to what they would need to do if this passed, and it didn’t convince those who voted. We can’t be surprised when they need to follow through with that process to stay in business.
Cory R. King is the executive director of the Southern Midcoast Maine Chamber.
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