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Businesses Divided over Impact of Higher Minimum Wage

February 2, 2007 at 6:30 PM EST
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LEE HOCHBERG, NewsHour Correspondent: When you cross the border on Interstate 90 from Idaho into Washington state, you move from a state with the lowest minimum wage in the country to one with the highest: $7.93 per hour, after a recent 30-cent raise.

Have the higher wages in Washington hurt businesses on that side of the border? Not at Papa Murphy’s. Business is booming, and profits are steady at the restaurant in Liberty Lake, Wash., two miles from the border. Manager Tom Singleton.

TOM SINGLETON, Restaurant Manager: I’ve got 14 employees, and they’re all making — well, they start out at $7.93 an hour, some make more, depending. And in the last three years, we haven’t raised any prices.

LEE HOCHBERG: Haven’t had to fire anybody?

TOM SINGLETON: Haven’t had to fire anybody, lay anybody off or nothing.

LEE HOCHBERG: Because Idaho is one of 21 states that has never raised its minimum beyond the $5.15 federal rate, half of these Papa Murphy’s employees, like 18-year-old Nichole Booth, come across the border from Idaho for the higher wage.

NICHOLE BOOTH, Employee: When you, like, think about it in hundreds of dollars, like, that’s more. That’s like three more gas tanks full of gas or, you know, like — it’s worth it.

Report: higher wage, little damage

LEE HOCHBERG: As the Washington state wage jumped eight times in eight years, critics predicted jobs would disappear and consumer prices would soar. But unemployment in this growing corridor along Interstate 90 is the same on both sides of the border, a small 4 percent to 5 percent. In fact, many employers on the Idaho side have matched Washington's rate in order to keep employees.

SCOTT BAILEY, Regional Economist, Washington: We can't find any smoking gun to say that there's been a negative impact on jobs. It's a nice theory, but in the real world, the impact is small.

LEE HOCHBERG: State of Washington economist Scott Bailey says the state's nearly $8-an-hour minimum wage is exactly where it was in 1968, adjusted for inflation. He says even industries with lots of minimum wage jobs are doing fine.

SCOTT BAILEY: In the restaurant industry, no impact that I can find. In the retail industry, no impact that we can find. In agriculture, when there's a big freeze in Southern California and wipes out the orange crop, that's a much bigger impact on prices than the minimum wage.

LEE HOCHBERG: Economic modeling done at Washington State University suggests, "Minimum wage increases are absorbed by the Washington economy with very little overall damage." The report adds, "Such increases are beneficial to minimum wage workers."

Businesses suffer setbacks

LEE HOCHBERG: Yet there clearly are places where Washington's high minimum wage poses a problem. At the Stepping Stone Christian School and Childcare in Liberty Lake, five of the 29 employees earn minimum wage. When the facility gave them raises in January, it gave boosts to those just above them, as well, driving overall labor costs up $675 per month.

Finance director Shelly Greybeck says the center had no choice but to cut employees or reduce their hours.

SHELLY GREYBECK, Stepping Stone Childcare: We've already let one part-time teacher go, and some of the -- there's about three others that we've cut back, anywhere between two and eight hours a week.

LEE HOCHBERG: She says restaurants can raise prices to cover higher salaries, but her daycare can't ask much more than the $400 to $800 per child per month it's already charging.

SHELLY GREYBECK: The parents are paying good money to have their children in quality care. But because of the increases in minimum wage, we have had to make cuts in our materials, such as construction paper, glue, markers, books, those kinds of things, as well as in teacher hours, to make up for that.

LEE HOCHBERG: And in the slower, less sizzling economic areas of Washington state, in rural towns along the Snake River, like Clarkston, it may be also be tough to absorb the higher minimum wage.

While it's true business has never been better at Fazzari's Finest Pizza, it comes at a price. Minimum wage workers had to scurry to keep up on a recent jammed Tuesday night. Owner John Fazzari says he made about $50,000 in profits last year, but he's going to have to give up a third of that this year to pay higher wages.

JOHN FAZZARI, Restaurant Owner: I mean, I gave everybody a raise. Like I told you, the full-time people deserved the raise, too. They're the ones doing the work. So it cost us $15,000 bucks.

Yes, we're booming. It looks great out there. I have to be doing that kind of business to stay in the same spot that I was five years ago. I have to.

An argument against a living wage

LEE HOCHBERG: He's upped the price of pizza 60 cents but says, in this moderate income town, he can't go much higher. He's beginning to wonder about the argument that he should provide his young workers a life-sustaining wage.

JOHN FAZZARI: My employees are high school kids. My employees are college kids who need a few bucks just to get by until they get their next gig.

I don't have families trying to make a living here. You don't have people coming up and asking you for extra days and extra hours. You don't. They're trying to get time off. "Can I go home please? I want to go play video games."

LEE HOCHBERG: With competition from pizza houses on the lower-wage Idaho side, opening in Clarkston is a decision he says he would not make again.

JOHN FAZZARI: Do you think, after I see this situation, do you think I would spend a dime in a town like this or on the border? No, not a dime. It's foolish. It's foolish. Why waste your money?

LEE HOCHBERG: The playing field would become more level if the proposed federal minimum wage of $7.25 becomes law, bringing Idaho's rate closer to Washington's. Economist Bailey emphasizes some workers do try to support their families on the wage, so a federal increase would be a good thing for many Idaho residents, too.

SCOTT BAILEY: There's a lot of high school kids who have a job because they're helping to put food on the table for their family. If you're earning $5.15 versus earning $7.90, absolutely it's going to impact your quality of life.

LEE HOCHBERG: But it worries Rob Elder, who owns the Hot Rod Cafe in Post Falls, Idaho.

ROB ELDER, Restaurant Owner: If I have to pay everybody out here on the floor, my whole team, $7, whatever it becomes, that's a huge deal. That would be literally doubling my costs in labor dollars. You take x-y-z hours times x-y-z employees times 365 days a year, it'll scare you how big of a number that is.

LEE HOCHBERG: It could mean a cut in his profits, he says, currently around $200,000 a year, or higher menu prices, or maybe cutting the number of hours his employees work.

Businessman supports wage increase

LEE HOCHBERG: Just down the street, another Idaho businessman bristled at that, saying it's time for a different way of thinking.

RON NILSON, Ground Force Manufacturing: My question to him is that maybe you should do is not put as much in your pocket; maybe you should find some way to put something into your employees' pocket.

LEE HOCHBERG: Ron Nilson owns Ground Force Manufacturing, an Idaho company that manufactures heavy-duty truck bodies and employs 70. He says he's hired some of his low-skilled employees out of jails, could have offered minimum wage, but didn't.

RON NILSON: I say that we need to raise the level of compensation for anybody that trades their time for money to a level of compensation where that he can make a living. If their business is that fragile that this amount of increase right there is going to run them out of business, maybe they shouldn't be in business in the first place.

LEE HOCHBERG: More than half-a-dozen states have already enacted laws that will raise their minimum wages over the next year or two.

RAY SUAREZ: Meanwhile, the Senate this week approved what would be the first increase in the federal minimum wage in 10 years, to $7.25 over two years. However, a series of small business tax breaks the Senate attached to the bill could jeopardize its eventually becoming law. The House wage bill has no tax cuts included.