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By Michelle Saturley
Business NH Magazine, February 2007

The battle over the federal minimum wage is escalating as the U.S. House voted in January to raise it from $5.15 to $7.25 per hour over 26 months, with the Senate working on its own version of a bill. Since NH tradionally sets its minimum wage by the federal standard advocates and opponents alike are closely watching the debate. The state's Democratic leaders have also made raising the mimimum wage a priority

The University of NH's Office of Economic Initiatives (OEI) released its 2006 Basic Needs and Livable Wage Study in December, shining a brighter spotlight on the gap between earning minimum wage and what it actually takes to live in the Granite State.

It isn't the first time this topic has been hotly debated, but this time the issue may get more than the standard lip service from state leaders and activists. If so, what will that mean for NH's workforce and business owners?

Livable Wage vs. Minimum Wage

"One of the best things about a study like this is that it gives definition to what a living wage is," says Janice Kitchen, director of the UNH OEI. "Many people think that minimum wage and livable wage are the same thing, and this study reveals that they are indeed very different." The federal standard has remained at $5.15 per hour for the past decade. Kitchen, who was a project director for the study, says that while the minimum wage is a fixed rate decided upon by the federal government, the livable wage is more fluid, depending on an individual's living situation. "For example, the living wage for a single person with no dependents is going to be a different number than the living wage for a two-parent household with two kids," she explains.

A livable wage is the hourly rate at which an individual or family can cover a household's basic needs, including food (without restaurant meals), utilities (excluding cable TV), rent, clothing, transportation, child care, health care, and savings (defined as 5 percent of the budget). Currently, a two-adult, two-child family in NH where both parents are working needs to bring in $48,625 per year to cover all of these expenses - about $11.69 per hour.

This varies for a single person, who needs to earn $9.30 per hour. And a single parent with two children must bring in $16.43 per hour to cover the basics. "So, there is quite a range of hourly rates for a living wage depending on how you live," Kitchen explains. She adds that regardless of the livable wage rate for various individual circumstances, NH's minimum wage doesn't even come close to covering these expenses. "New Hampshire has the lowest minimum wage in New England," she says. "All the other five states have elected to raise their state minimum wage above the federal mandate."

Wage Wars

When the OEI released its first study on the NH Livable Wage in 2001, the state was still reeling from the dotbomb catastrophe. Tech businesses, which just a year earlier were strengthening NH's economic backbone like never before, were suddenly closing up shop or relocating to Massachusetts. Amid that turmoil came the news that only 59 percent of jobs in the state paid what qualified as a livable wage for a single person, and only 13 percent of jobs paid enough to support a single parent with two small children.

This news set off a firestorm of activism and media coverage. In 2001, Gov. Jeanne Shaheen spoke at length about her quest to raise the minimum wage in NH, which had not been raised from the federal mandate of $5.15 per hour since 1997. Back then, OEI's estimation of a livable wage was $9.01 per hour, but it was not enough to convince legislators to raise the minimum wage.

In 2004, state legislators presented House Bill 1278, proposing to increase the minimum wage gradually during a three-year period to $6.65 per hour by 2006. The Bill also called for tipped employees of restaurants, hotels, motels, inns, or cabins who regularly receive more than $20 a month in tips directly from customers to receive a base rate from the employer of no less than $2.38 per hour. The Bill was defeated by the slimmest of margins-one vote.

Martha Yager, coordinator for the NH chapter of Let Justice Roll, a national grassroots campaign to raise the minimum wage, says that although the bill was defeated, proponents of the wage increase were encouraged. "The study, the bill and the dialogue that came out of it were positive," she says.

The latest study by the OEI follows in the footsteps of the 2001 release. "The most recent findings are consistent with what we already knew from previous research," Kitchen says. "But what we did find this time around is that there are a number of factors that contribute to the gap between minimum wage and what we define as a livable wage."

Mark MacKenzie of the NH AFL-CIO says that gap shouldn't come as a surprise to anyone. "It's getting more and more expensive to live all the time. Housing costs, day care costs, health care costs-they're all sky high, and most wages aren't reflecting that."

Not only is there a gap between the minimum wage and a livable wage, but MacKenzie says that the chasm between white-collar executives and blue-collar workers is growing. According to the Economic Policy Institute's Minimum Wage Issue Guide, in 1975, CEOs earned 78 times that of minimum wage earners. Today's average chief executive earns 821 times that of a minimum wage worker. "With that kind of difference between the haves and the have-nots, it's just bad public policy to have such a low minimum wage. It doesn't make sense," MacKenzie says.

The Faces of Minimum Wage

Most of us visualize a high school-aged kid just entering the workforce as the typical minimum-wage earner. And there is some truth to that image.

"In the quick food or fast food industries, a majority of employees are the part-timers who are in school full time," says Richard French, president of Bagel Works/Works Bakery, a Keene-based chain of bagel and coffee shops with locations in three New England states. "But we also have employees who are re-entering the workforce after raising children, people who have recently come to the U.S. from other countries, and people who are nearing retirement age but can't afford to retire completely. I'd say the minimum wage workforce is more diverse than people think."

Yager of Let Justice Roll points out that the restaurant industry is exempt from paying a minimum wage to servers, and sometimes busboys and hostesses. "They are paid a reduced hourly rate by employers and compensated with tips," she says. Other industries where the pay consistently falls below the living wage median include child care workers, manufacturing employees and retail employees.

Who are the minimum-wage workers? In a report called Characteristics of Minimum Wage Workers, the U.S. Bureau of Labor Statistics reports that 60 percent of minimum wage earners work in restaurants and bars. Two-thirds are women, 73 percent are white, and 70.2 percent of them have a high school diploma. Only 26 percent of minimum-wage earners are teenagers between the ages of 16 and 19, while 47 percent are age 25 or older.

"Many of them are single mothers who are the sole supporters of their families. There is a belief that most people making minimum wage are young people with after-school jobs, but the evidence doesn't support that," he says.

Give a Raise, Hurt a Business?

The fear that an increase in minimum wage or the adoption of a livable wage could hurt NH's small businesses has been the rallying cry of many policymakers and business owners. "It certainly makes sense for business owners of small and even large companies to feel nervous about it," French says.

Then there's the global workforce issue. The trend of off-shoring to underdeveloped countries where labor is cheaper has been ample cause for alarm - especially in sectors like the tech industry and textile manufacturing. "In our business, we are trying to compete globally with companies who pay their textile workers in China 11 to 14 cents per hour," says Chuck Henderson, president of Chuck Roast, an outerwear manufacturing company in Conway. "We want to use local workers, but that means we have to pay them local wages. How do we offset that?"

"I think the fear is that raising wages for entry-level workers will cause longer-term employees to expect a raise as well, until pretty soon, a small business owner can't even afford to pay himself," French of Bagel Works/Works Cafe says. But he adds that the anecdotal evidence doesn't support that fear. Back in 1997, French made a conscious decision to pay his employees what he calls a "fair wage." "We don't start anybody in any of our stores at under $7.50 per hour," he says. "I think that expecting someone to work 40 hours a week for $5.15 an hour is a joke."

Since making that decision to raise starting wages, French has noticed a marked decrease in employee turnover. "The food industry as a whole experiences staggering turnover - an average of 300 percent a year," he says. "Since raising wages, we've leveled off at about a 50 percent turnover rate annually. The amount I save by not having to constantly seek replacement employees and train them is significant."

However, French says that the rising cost of healthcare premiums has made it difficult for him to follow the living wage guidelines. "Although we are paying well above minimum wage, I know that a significant portion of our employees are not making what I would consider a living wage," he says. "That is, as a company, our ultimate goal, but we aren't there yet. And the number one reason for that is health care. Our insurance premiums have more than doubled each year since 1997."

While some larger companies can subsidize the costs of health insurance, smaller businesses like Bagel Works, which employs about 400 workers in NH, Vermont and Maine, can't afford to do so. "Something has to give somewhere," French says. "In a mature industry like the food business, there is not a huge profit margin. It's not like we can make up the difference by raising the cost of a cup of coffee."

Henderson of Chuck Roast agrees that health care is a financial stumbling block. "Health care is definitely the 800-pound gorilla in the room," he says. "It makes it hard for a company who wants to do the right thing by its employees and pay them what they're worth. But at the end of the day, it's a business, and we have to have a profit to stay alive."

French says his team "constantly struggles with providing the best possible work environment and making enough of a profit to be sustainable. To be honest, I don't know what the answer will ultimately be to this balancing act. We are walking a fine line between being accountable to our employees and to our shareholders."

All in the Timing

Congressman-elect Paul Hodes, during his campaign, actually leveraged the minimum wage as a platform issue. Hodes, a Democrat from Concord, discussed a minimum wage raise with NH AFL-CIO leaders, union members and community leaders around the state prior to his election. MacKenzie thinks it is one of the issues that helped Hodes get elected. "New Hampshire citizens voted for a new direction when they elected Paul," he says. "Over the past 10 years, Congress has given itself nine pay raises, yet they have blocked every attempt to raise the federal minimum wage."

And it seems as though the issue is crossing party lines as well. New Hampshire's Republican Senators Judd Gregg and John E. Sununu, in the past, had voted against raising minimum wages nationally, but in the last Republican-sponsored legislation to raise the wage, both Senators favored the hike. However, Democrats were quick to point out the Republicans, at the eleventh hour, had added a rider to the bill calling for the elimination of the inheritance tax, which is the reason Democrats voted the bill down.

According to an April 2006 report from the Pew Research Center, 83 percent of Americans favor raising the federal minimum wage to $7.15 per hour. Yager thinks the reason is that the link between the federal wage guidelines and poverty is hard to ignore. "A person who works 40 hours every week and earns the $5.15 federal minimum wage only brings home about $206 after a week's work and $10,712 after a year," she says. That number is barely ahead of the official US. poverty threshold, which was $9,827 in 2004. However, not everyone welcomes an increase in the minimum wage. The National Restaurant Association has kicked off a letter-writing campaign urging its members to oppose the proposed 41 percent increase to the federal minimum wage.

"I am one of the few in the food industry who thinks the increase is a positive," French says. "In a state like New Hampshire, where the hospitality industry is such a large contributor to the economy, their viewpoint is definitely factored in to any legislative decision." However, French's employees are not tipped employees.

The New Hampshire Lodging and Restaurant Association (NHLRA) has been watching the movement toward a minimum wage hike nervously. "Waitstaff and other tipped employees are paid 45 percent of the state minimum wage, plus tips, which averages out to between $13 and $16 per hour," says Kevin Sullivan, chairman of the NHLRA and owner of Galley Hatch Catering in Hampton. I don't think it is fair to lump them in with the big box store employees who truly are making minimum wage. On paper, it would appear that waiters and waitresses are making less, but the reality is, at some of the more high-volume restaurants, these employees are making a very good living."

The NHLRA would like to see the tip wage frozen at $2.38. Sullivan points out that menu prices go up roughly 4 to 5 percent per year, which should lead to increased tips. Sullivan adds that in NH's restaurants, non-tipped employees such as dishwashers, linecooks and other kitchen workers are making well above minimum wage. "I don't know of any restaurant in southern New Hampshire that can get anyone to walk through the door for less than $8 an hour to start," he says. "That might be different up in the North Country, where the cost of living may be lower and jobs may be harder to come by. But down in this area, even the high school kids won't take minimum wage. It's not worth it to them."

If NH does raise the minimum wage in the coming year, Sullivan says that restaurant owners and diners alike will feel the pinch. "If salaries go up, that will be reflected in menu prices," he says. "Menu prices already increase year over year by about $1, but that will go higher if restaurant owners pay a higher percentage of their waitstaff's hourly wage."

But MacKenzie of the NH AFL-CIO thinks that most NH citizens are willing to pay that price. "In the food industry, in the retail industry and in other sectors of business, a minimum wage increase will most likely be passed along to consumers," he says. "But I believe most of us are willing to pay a little extra for a night out if it means someone else actually gets to make a decent living."

Whatever happens at the federal level, Yager believes that any raise in minimum wage that happens in NH will come from a local push. "The federal level is supposed to be the absolute lowest guideline," she explains. "The states still have the authority to raise that wage as they see fit." Currently, 22 states have successfully passed voter referendums to raise the minimum wage above the federal guidelines. Maine, Vermont, Massachusetts, Connecticut, and Rhode Island have all opted to set their respective minimum wages higher than the federal standard.

MacKenzie says this puts NH at a disadvantage. "For people who live in a border town in New Hampshire, it's a no-brainer," he says. "If someone who lives in Nashua can choose to work at a mall in Massachusetts for $8 per hour or a mall in New Hampshire for $5.15 an hour, which one do you think they'll choose? I think the argument that raising wages will hurt businesses is a short-sighted one when put into that context."

Yager says the time is right to revisit the issue of a minimum wage increase in NH. "There has been a sea change in leadership since 2004," she says. "I also think that the public has been made more aware of both the minimum wage and livable wage issues."

Copyright 2007 ProQuest Information and Learning Company
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