Leader Telegram: Businesses react to this week's rise in minimum wage

By Eric Lindquist
Leader-Telegram (WI), July 23, 2009

The nation's lowest-paid workers will get a raise Friday when the federal minimum wage climbs 10.7 percent to $7.25 an hour.

With the economy mired in recession, the boost couldn't come at a better time for the workers who will benefit, but business owners are worried the change will hurt their already-strained bottom lines.

North High School junior Jake Jenneman, who earns minimum wage working for a local fast-food restaurant, said the increase will be much appreciated.

"I'll probably put the extra money toward a car," said Jenneman, who has been saving for that big-ticket item.

Jenneman will be one of an estimated 196,000 Wisconsin workers who will benefit when the wage hike takes effect, said Laura Dresser, a labor economist with UW-Madison's Center on Wisconsin Strategy. That includes 100,000 people who make less than $7.25 an hour and 96,000 who make more than that but are likely to gain indirectly from a positive ripple effect.

"These folks, despite the conventional wisdom, are not just teenagers looking for extra summer money," said Thomas Kemp, an associate professor of economics at UW-Eau Claire. "Many of them, especially in the Eau Claire area, are working to support families with these jobs."

For a full-time worker going from the current federal minimum wage of $6.55 to the new level, the raise will mean an extra $28 a week.

While Kemp, also an Eau Claire councilman, said he supports the minimum wage increase because of the benefits to low-wage workers, he acknowledged that increasing costs to businesses in the middle of a recession could slow the rehiring of displaced workers.

Mike DeRosa, president of two companies that own four Burger Kings in Eau Claire and nine others in west-central Wisconsin, expects the increase to affect staffing levels at his restaurants.

Though most of his 400 to 450 workers already make more than minimum wage, that is the traditional starting pay rate, so some employees will be getting a raise Friday, DeRosa said.

The problem, he said, is the business won't have any more revenue coming in even though it will be paying out more to those workers. As a result, his stores likely will trim hours and seek productivity improvements to compensate for the impact of the wage increase.

"In this economy, this is just another hit for businesses," DeRosa said. "It's going to be very hard to pass this on to consumers because their purchasing power already has been reduced because of the recession."

Unfortunately, DeRosa said, the ones who probably will get hurt the most are teenagers trying to break into the workforce because businesses will be looking for the most productive workers and those with the most flexibility in their work schedules.

"It will be harder for those poor kids to go out and find jobs," he said.

Friday's wage hike represents the last installment of a three-part increase instituted the past two years - a string of government-mandated raises the Eau Claire Area Chamber of Commerce opposed.

"We believe the free enterprise system should be allowed to work and let employers pay what they can," said Bob McCoy, chamber president. "We don't agree with the basic principle of government telling business what they have to pay."

McCoy said workers who want to move up the pay scale should seek the additional training or education needed to make that happen.

Imposing a pay increase during a recession is particularly bad timing and could lead to layoffs, benefit cuts or lower take-home pay for business owners, said John Metcalf, director of human resources policy for Wisconsin Manufacturers and Commerce, the state's largest business organization.

However, that view isn't shared by all companies, as a national group called Business for a Fair Minimum Wage issued a news release this week saying it supports the increase because it will boost consumer buying power and promote economic recovery.

The organization indicated the change will bring a pay increase to more than 7 percent of Wisconsin workers.

Richard Ketring, president of VHS Cleaning Services in Ashland, is one of nearly 1,000 business owners and executives who signed the group's statement supporting the wage boost.

"I support the minimum wage increase not only because it is the right thing to do, but it is good for business," he said in the news release.

Dresser, the UW-Madison economist, agreed and called the minimum wage increase good economic and equity policy.

"It's a good stimulus policy because low-wage workers are the ones who spend their money and don't save it when they get a wage increase," she said. "They have to buy stuff - food and shelter and all those immediate things that go directly into the economy."

Lindquist can be reached at 833-9209, 800-236-7077 or eric.lindquist@ecpc.com.

Copyright 2009 Leader Telegram

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