Minimum wage hike comes with a hidden cost

Thursday, January 10, 2008

Day care struggles, some worry that higher wages will mean less jobs, higher prices for goods and services

There is no such thing as a free lunch.

And if that's the case, you might expect to see your next drive-through hamburger taking a bigger bite out of your pocket change as Iowa's new increase in minimum wage trickles down.

On Jan. 1, the state's minimum hourly wage jumped from $6.20 to $7.25 - the second half of a dramatic two-part raise promoted by new Governor Culver and approved the Legislature early last year.

For many local businesses, the impact has been sharp and immediate.

"I don't think anyone is against people making a better wage, but the fact is that this will bring the cost of goods and services up for the consumer in turn. It has to," said Marilyn Monson, director of the Storm Lake Chamber of Commerce.

Some local businesses may also trim the number of people they hire, she expects. And while entry-level employees are pleased with what they feel is an overdue wage increase, some are worrying that they may actually make less if their employers compensate by cutting back hours.

"All the businesses are considering downsizing, or at least they are looking twice at their budgets. Some of them are trying to do their merchandising a little differently to make up for the additional cost in wages," Monson said. "Everyone is adjusting."

The last time Iowa had a higher minimum wage than the federal minimum, the people whose wages were increased actually saw lower paychecks as a group due to employer reductions in hours, Iowa State University professor of economics Peter Orazem said earlier this year.

Some businesses won't be able to absord the increased wage costs, and small retailers may opt to close in the evening or on weekends. "Those are the trade-offs," he said.

Iowa's minimum wage has been a matter of debate for years. It sat stalled at $5.10 an hour for a decade before being bumped up to $6.20 last April - that raise wasn't seen as terribly painful for local employers, almost all of whom had already been paying above the previous minimum wage. The addition $1.05 an hour now is making more of an impact, many employers say.

"The businesses that feel it especially are the ones that employ a lot of entry level people to provide services - health care, fast food and so on. I think day care is especially impacted. They will almost be forced to raise the prices they charge parents, and those parents may not be among those who are getting a pay increase," Monson said.

Indeed, Gingerbread House child care facility in Storm Lake finds itself swallowing much of the cost of the wage increase.

"Being a non-profit, we have to be focused on the service we give to families. We have had to raise rates this year, but we could never pass on the whole cost - they couldn't afford it," Gingerbread board president Kathy Fritz said.

The minimum wage increase will cost the center $50,000-$70,000 this year and will directly effect about half the Gingerbread employees - at a time when the budget was already tight. For the first time, the center has undertaken a public fund drive, which it hopes will help raise the funds needed to continue providing its services, administrator Sandy Johnson notes.

"It costs Gingerbread about $3.15 every hour per child we care for. Obviously, we can't charge all that to the parents," Fritz said.

Most of the staff realizes that there won't be big money in the jobs. "They are here for the right reasons, because they love kids. But it can be hard on marale when they see new people off the street coming in and making almost as much as people who have been there for years and years. Like other employers, we do wish to be able to raise up the people who may be above the minimum wage level somewhat too," she adds.

Other businesspeople in Storm Lake say they are concerned about retaining workers. While they may have paid well above minimum wage before, suddenly jobs everywhere are offering over $7, and if they can't up the ante, workers may leave for minimum wage jobs that they find more convenient.

"Minimum wage is a wonderful thing - but my concern is that small businesses and places like day care centers could be faced with a decision to close their doors," Fritz said.

Gingerbread, like other places, always faces the issue of finding enough workers in a city where economic growth may provide new jobs faster than the population of available workers is expanding.

"There is trouble finding people. And when you do, it seems like there is always someone else willing to offer a little higher wage to attract them away," Fritz said.

While Storm Lake has been somewhat insulated, business owners in other areas of the state say they are feeling the impact of a slowing national economy and rising inflation that make it harder to swallow a mandate to pay higher wages.

Storm Lake Chamber of Commerce officials recents quizzed Senator Steve Kettering about the issue, and found that legislators are quite aware of the impact the back-to-back hikes in minimum wage is causing on the small business community.

Some local businesspeople would rather see wages adjusted in small cost-of-living amounts on an annual basis rather than having to adapt to a high-perccentage increase in a single year.

"We asked [Kettering] if there was a solution, but if there was a solution, we would have found it a long time ago," Monson said.

Some have predicted that the higher wages will dry up jobs for older high school and college-age students in the workplace, but Monson doesn't see any signs of that happening.

"At nearly every business I go to in Storm Lake, they are constantly looking for people - capable and competent people. I don't think the age is mattering as much as whether that person is prepared to do the task and is trainable," she said. "The 'Help Wanted' sign is still out in Storm Lake."

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