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Potential wage raise draws mixed reactions from local businesses

May 20, 2014

Local business owners and economic experts alike have mixed reactions to a state bill that would raise the minimum wage.

The bill, recently passed by the state Senate, would raise minimum wage from $7.40 to $9.20 for regular employees and from $2.65 to $3.50 for tipped employees, such as waitresses and bartenders.

According to bill language, the minimum wage would increase from $7.40 to $9.20 in four incremental steps over a 28-month period. The wage would first increase to $8.15 in September, and the final increase to $9.20 would begin Jan. 1, 2017. 

For tipped employees, the wage would similarly increase, but in smaller increments.

"It seems to me as though the Senate has spread the increase in a fairly logical way," said Mike Wylie, assistant manager at Student Book Store.

Wylie said if the bill passes into law, SBS will have to look at its budget before deciding how to handle the first and largest increase from $7.40 to $8.15.

In a worst-case scenario, SBS would cut workers' hours or lay off employees. Wylie said this would likely happen if the petition to raise the minimum wage to $10.10 was adopted instead of current legislation, because the petition would likely increases wages in larger increments.

But Wylie said businesses have adjusted to minimum wage increases in the past, and as long as each step of the $9.20 minimum wage bill is manageable, this time should be no different.

"If those steps are common sense incrementally, then we can adjust to those," Wylie said.

Rick Sauer, the general manager of Dublin Square Irish Pub, took a more polarized stance.

"The problem with the bill from our industry's point-of-view is it's just going to increase cost-of-living," Sauer said.

He said if the bill passes into law, Dublin Square will have to drive up its menu prices in order to compensate for wage increases.

"That's going to increase cost for the consumer immediately," Sauer said.

Both Wylie and Sauer said their businesses would not want to resort to shrinking their staff sizes, because a well-sized staff is needed to best serve customers.

Sauer said the bill would probably affect the prices of products as opposed to the number of workers in many businesses in his industry. 

"I don't think it will affect hiring as much as it will affect pricing ... in order to cover the increased labor cost," Sauer said.

Economics experts have also disagreed about the effects of minimum wage increase. 

“You’d never expect it to be positive for the businesses," University of Michigan economics professor Jeffrey Smith said.

Smith said while the increase would make some workers better off financially in the short term, others could lose their jobs.

A report released by the Congressional Budget Office in February concluded similar results could occur if the federal minimum wage increased.

If the federal minimum wage increased to $9.00 by 2016, roughly 300,000 people would move above the poverty line, according to CBO projections. However, employment would be reduced by about 100,000 workers.

Smith said previous minimum wage increases have caused businesses to provide fewer services, employ fewer workers, and put more demands on the consumer.

For example, pharmacies have self-checkout registers for consumers to act as their own cashiers and fast food restaurants give customers cups to fill up their own drinks.

Smith said there are better policy options for helping impoverished workers. For example, lawmakers could raise the earned income tax credit. The credit works through income tax, and it is essentially a subsidy to the earnings of low-income households.

"I would definitely agree that the earned income tax credit is better,” said Charles Ballard, an MSU economics professor. 

He said not everyone making minimum wage is impoverished. A teenager of an affluent doctor could benefit from the minimum wage increase to the same degree as a low-income co-worker. The tax credit targets the low-income household as opposed to the low-wage worker.

Ballard also said he is not against a minimum wage increase in the state of Michigan.

“The minimum wage is certainly not a perfect policy," Ballard said, but emphasized " a lot of workers who would see an increase in their wage rate, and relatively few who would have trouble finding a job.”

Ballard said the bill, if enacted into law, could make a positive difference in the lives of many low-wage, low-skilled workers. The authors of a petition to raise Michigan's minimum wage to $10.10 allege the bill was introduced to undermine their initiative.

"If it had been on the ballot, the move to $10.10, I would’ve voted for it," Ballard said. "It’s on the edge of the (highest) range I’d be comfortable with.”

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