Making pennies stretch further: Business owners uncertain of minimum wage increase

By Tony Wittkowski | Business Reporter | The Herald-Palladium

ST. JOSEPH — Tom Jennings remembers getting paid $1.45 an hour at his first job and being happy about it.

That first job was at a Kentucky Fried Chicken restaurant in the 1970s, when Jennings was still attending high school. Decades later as the owner of Czar’s 505 in downtown St. Joseph, Jennings doesn’t understand why the conversation of upping minimum wage to $15 an hour should be broached.

“If people are good, they’ll work their way up,” Jennings said. “Getting paid $1.45 an hour, I didn’t complain about it because I was a high school kid in 1974.”

As of Jan. 1, the minimum wage increased from $8.50 to $8.90 an hour in Michigan. The wage is scheduled to climb again on Jan. 1, 2018, to $9.25, with future increases tied to the rate of inflation.

Tipped workers are also getting a similar bump in pay. Their base pay rate has gone from $3.23 to $3.38, and will go up again at the start of next year to $3.52. However, these increases are applicable to employers of two or more employees in Michigan.

While minimum wage is set at $8.50 in January, there are still lower wage rates that were enforced at the start of the year. Employers can pay $4.25 per hour for newly employed teens between the ages of 16 and 19 for the first 90 days of their employment. After that, the employees that are ages 16 and 17 can still be paid the federal minimum wage of $7.25 per hour.

According to estimates from the U.S. Department of Labor, about 4.3 million low-wage workers across America were slated to experience a pay increase across 19 states last week. In total, 29 states and the District of Columbia have now set a minimum wage level higher than the federal standard of $7.25 an hour.

Aside from local districts, Washington, D.C., has the highest minimum wage in the U.S. at $11.50, followed by Massachusetts and Washington with $11 each. Arizona made the biggest pay leap this month, with its minimum wage increasing by $1.95 to $10.

While Michiganders might have to wait a few years before reaching that level, it could be worse. The lowest minimum wage belongs to Wyoming at $5.15.

Minimum wage had been $7.40 in Michigan before 2014, when legislators passed a bill that would raise it gradually to $9.25 by 2018. It previously rose to $8.15 on Sept. 1, 2014.

Jennings, who’s owned and managed several area businesses in downtown St. Joseph, said raising minimum wage is not a good thing.

“In a time when we are in competition with other states and countries, this is not a good idea,” Jennings said. “Small businesses already have enough trouble trying to turn a profit and we don’t need to put anything more overhead.”

A theory among several economists is one that Jennings believes is a possibility with the pay hike. By raising the minimum wage, in theory, businesses will be inclined to hire fewer people in entry-level positions. This in turn would then lead to a slight boost in unemployment.

Roger Seely, owner of Roger’s Foodland in Royalton Township, said they try to stay as competitive as anybody else when it comes to pay. While Seely said they don’t plan on eliminating any positions at their grocery store, their budget is expected to get a little tighter.

“We work off of such small margins that any factor can make things tighter,” Seely said. “But somehow, down the road, everybody is going to have to adjust to cover these things. I mean, when the price of gasoline goes up, things change. That’s just business. We’ll dig into our pockets as we go along.”

Jennings said because of the wage increase, there are a lot fewer hostesses in the restaurant business because most can’t afford to pay that much for people to sit out front and greet customers.

“It’s too difficult to make money in labor-intensive businesses,” said Jennings, who used to run Pump House Grill, among other St. Joseph eateries. “The market is not going to absorb it. You can’t just pass it along to a customer. It’s caused me to not want to be in the restaurant business.”

Among the industries Jennings expects to see hit by the increased minimum wage are retail stores and restaurants – who often provide that first job for high school students.

Jennings said the state could face another hurdle in attracting potential companies with increased wages.

“If you have a company that wants to relocate a factory, and they’re thinking about going to Berrien County or northern Indiana, the company will go where the wage is lower,” Jennings said.

Too soon to tell?

For economic development organizations like Kinexus, which trains inexperienced workers, there appears to be no real hard data yet to show any potential impact. Currently, 2015 holds the most recent data for occupational wages locally and statewide.

“The first increase in minimum wage in Michigan was Jan. 1, 2016, where it went up to $8.50 (an hour),” Mary Morphey, customer engagement manager with Kinexus, said in an email. “Now a second increase has happened and we don’t know the impact yet. Right now, any data that we could present from EMSI shows potential wage growth would be anecdotal at best.”

However, Seely said minimum wage no longer applies to anyone who is trying to feed their family. He said the people who are normally paid the minimum are either working a part-time job or are working for some extra spending money.

Seely recalled his first job when he was a bagger at a grocery store.

In 1960, he was paid the union wage of $1.03 per hour. While he doesn’t believe a bagger should be paid $15 an hour like many fast-food restaurant workers are lobbying for, Seely said he believes the increase will benefit employees due to the rising costs of living.

“When I came out of the service, the price of bread went up from 19 cents to 30 cents,” Seely said. “Everything has gone up one way or another. Now a cheap loaf of bread is $1.50, so pay has to account for that. We just have to make pennies stretch out farther.”

Jim Kramer, who owns Schu’s bar & Grill and Tim’s Too in downtown St. Joseph, doesn’t foresee the wage increase having any impact on his restaurants.

This is because few who work at his restaurants are paid minimum wage, Kramer said.

“Depending on their age and experience, some of our summer employees, like hosts and dishwashers, are the main ones who would be paid minimum wage,” Kramer said. But that’s just to start out. If they work long enough, they move up rather quickly in payroll.”

During his time in the restaurant industry, Kramer said he’s in favor of increasing minimum wage and making things even. Kramer said the minimum wage should be decided by other factors – especially if it’s an employee’s first job.

Kramer hasn’t heard anything negative about restaurants closing as a result of the increase. However, he said upping minimum wage will eventually be passed on to the customers or the profit margins of businesses will take a hit.

“It’s a natural thing. If your food prices go up, what we pay for the price of the food we have to be passed along,” Kramer said. “But can you do that all the time? No. The price of ground beef went up this summer, but did we charge extra? No. The price eventually went back down and it evened itself out.”

Contact Tony Wittkowski at twittkowski@TheHP.com or (269) 932-0358. Follow him on Twitter: @tonywittkowski.

(Author’s Note: This article was originally published on Jan. 8, 2017)

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