Minimum wage hike will have ripple effect
by Joseph Gresser
Local employers say a rise in pay for those at the bottom of the ladder is sure to increase salaries for those on the higher rungs.
That will be good news for many workers, they say, but could come at the cost of increased prices for goods and services.
Vermont’s minimum wage will rise on New Year’s Day 2015 and on each January 1 until 2018. The Vermont Legislature voted to increase it from the present level of $8.73 an hour to $10.50 in four annual jumps.
Under the new minimum wage law, the rate will rise to $9.15 in 2015, $9.60 in 2016, $10 in 2017, and 10.50 in 2018. Workers who earn at least $120 a month in tips, such as waiters and hotel staff, will see their wages set at no less than half the prevailing minimum.
After that, the rate will be adjusted annually to rise by 5 percent, or the federally set consumer price index rate, whichever is smaller. No matter what, the law says, the minimum wage will not drop.
The decision represented a compromise between a House bill that originally called for setting the rate at $12.50 an hour in one step beginning in 2015. That approach was opposed by Governor Peter Shumlin, much of the business community, and the state Senate.
“I didn’t support the House position,” said Representative Mike Marcotte of Coventry, who is vice-chairman of the Committee on Commerce and Community Development. “In the view of a lot of members, both Republicans and Democrats, it was too much for businesses to handle at one shot.”
Mr. Marcotte, whose committee helped craft the final bill, said, “I did support $10.50 over four years. Businesses can fit that in their business plan and make it work.”
The new minimum wage bill replaced one enacted in 2005 that mandated annual increases based on inflation and the cost of living. Mr. Marcotte said he did not approve of that system. He believes the Legislature should vote to change the minimum wage, but he feels the new bill breaks a promise to employers of predictable wage increases.
Bill Stenger, the president and co-owner of Jay Peak Resort, put it a little differently.
“We’re going to have to figure it out,” he said about the wage increase.
Like other businessmen, Mr. Stenger said he understands the impulse to raise salaries for the lowest paid workers. Like them, he also saw an inevitable push to raise the cost of higher paid workers as well.
Jay Peak doesn’t hire any workers at Vermont’s current minimum wage of $8.73 an hour, Mr. Stenger said.
Neil Morrissette, who heads Creative Workforce Solutions in Newport and organizes job fairs locally, said the starting wage at the resort runs around $9 an hour.
“We have wage scales in all departments based on entry level, performance, years of service, or knowledge in the position, such as a chef or a ski instructor,” Mr. Stenger said. “When the wage goes to $9.60, all the scales will require modification.”
Mr. Stenger said he understands that many people believe higher wages will result in more spending and a better business environment in the state.
Jay Peak, he said, is in a different position than some other Vermont businesses because so many of its customers come across the border from Canada.
“If my labor costs go up by 15 or 20 percent, can I charge that much more? That’s where I’m worried,” Mr. Stenger said. “The Canadian dollar is at 91 percent of the U.S. dollar, and 50 percent of my market is very price sensitive.”
Pick and Shovel in Newport gives many local youth their first work experience, but co-owner Greg Hamblett said, “We’ve always tried to stay above minimum wage.”
Like Mr. Stenger, Mr. Hamblett expects to see some pressure to raise wages across the board.
“Someone making $20 an hour who has been with you a long time, seeing an inexperienced high school student making $10 an hour, won’t feel as good about what they make,” he predicted.
Mr. Hamblett said he understands the reasons for raising the minimum wage.
“You always want to see people making a livable wage, making a good living,” he said.
At the same time, he said he thinks it will be hard for some businesses to manage the change.
“I hope it helps,” he said. “But, there’s going to be some hurt as well. Some businesses can’t support the increased cost.”
Mr. Hamblett said he expects there will be some upward pressure on prices as wages, which are one of his biggest costs, rise.
When the overall economy is considered, Mr. Morrissette said, increased wages don’t appear that severe a burden on employers.
“If it’s $1.80 over the next five years, you’re not talking about much more than inflation, he said. “You’re talking about 60 or 70 cents above inflation. You’re not talking about a big difference. People will have to sharpen their pencils.”
According to Mr. Morrissette, fast food restaurants are going to be among the businesses hit hardest by the change.
“Their numbers are crunched pretty tight,” he said.
Mr. Morrissette sees the wage increase as, in part, a way to get people who have been hanging back from seeking employment into the job market. He was not certain, though, that it will be effective.
Columbia Forest Products, he said, is offering new hires between $12 and $12.50 an hour, but is having a hard time finding workers.
At River’s Edge Farm Stand in Barton, Lorrie Seadale, one of the owners, confirmed Mr. Morrissette’s observation. Minimum wage is beside the point, she said.
“We’ve people without any skills applying for jobs and expecting to start at $12.50 an hour,” Ms. Seadale.
Her small business could barely manage to pay for a person at current minimum wage, especially when the employer’s share of taxes, unemployment and workmen’s compensation is factored in, Ms. Seadale said.
People, especially those who live alone, couldn’t make it on minimum wage, she said, but if a business can’t support an employee, even at the minimum rate, the owners have to carry the burden.
Ms. Seadale said she has been working 18-hour days and can’t afford to pay herself minimum wage.
The situation was different when she and her husband, Eddie, owned and operated The Parson’s Corner, a restaurant serving breakfast and lunch, Ms. Seadale said.
Minimum wage for tipped employees has long been set below the regular minimum, and her servers were able to earn $100 a day in tips, over and above their hourly pay.
Mr. Marcotte said his business, Jimmy Kwik, a gas station and convenience store, will be affected by the wage hikes, but also by another action taken by the Legislature this session.
When cigarette taxes rise again in July, Mr. Marcotte said, “that will be another reason for people to go across the border.”
For a small business like his, Mr. Marcotte said, it will be hard to accommodate the new rates and still compete with bigger companies like Cumberland Farms, or Maplefields, which have greater purchasing power and can buy products and supplies at lower cost.
Mr. Marcotte pointed out that the cost to businesses is not limited to wages alone, but will also mean higher expenses for Federal Insurance Contributions Act (FICA) payments and unemployment insurance rates.
While Mr. Marcotte worries about his customers heading to New Hampshire when the new wages take effect, likely increasing prices as well, he sees better times on the horizon. Once the new Walmart opens, he said, there will be less reason for local residents to trek over Sheffield Heights to Littleton, New Hampshire, for a shopping excursion.
Higher wages are far from the only thing local workers need, said Mr. Morrissette. In general, he said, Northeast Kingdom “employers are trying to do the best they can for their workers.”
“Until we in the Northeast Kingdom look at transportation and housing, it’s not going to fit,” he said. “If you can’t get to a job, it doesn’t fit. These are big issues.”
Mr. Morrissette said he knows of at least one employer who tries to deal with the transportation problem by running its own shuttle and picking up employees every morning.
He didn’t know of any who have a solution to the high cost of housing.
“If a two-bedroom apartment costs $800 a month,” Mr. Morrissette calculated, “and a person earning $9 an hour has $280 a week after taxes, that means housing costs two-thirds of that person’s income.”
When a first draft of the House minimum wage bill attempted to set the rate at $12.50, the figure was based on what is said to be a living wage in Vermont. Even so, under state law, that is figured as “the hourly wage required for a full-time worker to pay for one-half of the basic needs budget for a two-person household with no children and employer-assisted health insurance averaged for both urban and rural areas.”
contact Joseph Gresser at [email protected]