You see them every day. Manning the counter at the gas station, flipping burgers or knocking on your door with pizza boxes in hand.
Minimum wage workers have a presence in the Capital Region job market. Every one of them received a raise when the federal minimum wage increased 70 cents to $7.25 on July 24, the third in a series of hikes that began in 2007.
But even as minimum wage employees receive a bump in their paychecks, the added expense has hit area employers already strained by the current economic recession where it hurts—in the pocketbook.
American General Investments, which operates 54 Cracker Barrel convenience stores in Baton Rouge, Lafayette and Monroe, was not hit as hard by the increase because it generally pays employees more than minimum wage, says Don Senft, the vice president of operations. Of the company’s 440 employees, 150 received a raise because of the increase.
While that number is relatively low, Senft says the increase will cause less hiring and more assessment to make sure current employees are being utilized to the fullest. A shortage of workers means more overtime, which adds time and a half to the increase.
“Retail businesses can’t recoup those expenses [wage increase] as quickly,” Senft says. “If we could raise prices to cover the wage increase, we’d be OK.”
While the company’s revenues are still healthy, Senft says it will take more time to recoup from the additional expense. Raising prices is more difficult for Cracker Barrel stores because competition is fierce and an April federal tax increase on tobacco has already cut into revenues.
Still, the company jumped five spots in Business Report’s recent list of the area’s top 100 private companies. It saw a 27.5% increase in revenue from $187.4 million in 2007 to $239.7 million in 2008.
“Customers don’t necessarily understand that cause and effect,” Senft says. “It’s a difficult thing to gauge, but there are any number of courses we can take to remain cost-effective.”
John Valluzzo is president of Valluzzo Management, which runs 55 McDonald’s franchises in Louisiana and Mississippi. The wage hike has caused labor and food costs to go up, which likely means prices will increase in small increments, Valluzzo says.
“The first two wage increases had less of an impact. Nobody predicted a recession,” Valluzzo says. “When the price of labor and food costs go up, we have to raise prices accordingly.”
Raising Cane’s chairman and CEO Todd Graves says workers at the chicken fingers chain typically start above minimum wage, but this increase has caused the cost of labor to rise in order to stay competitive in hiring.
“In the current economic situation, we do not want to pass those costs to our customers,” Graves says. “We’ve been fortunate enough to see continued same-store sales increases, so we will absorb the additional labor costs.”
Senft and Valluzzo say the increase also means that current employees who make around the $7.25 minimum wage also will receive raises to be determined by length of time with the company and skill sets.
“It’s not fair for someone who is has worked for us for a period of time to make the same wage as someone who was just hired today,” Senft says.
Increases in the minimum wage are approved in order to raise the standard of living and increase the buying power of those employees, says Hettie Richardson, associate professor and co-chair of the management department at LSU’s E.J. Ourso College of Business.
Whether or not increases succeed in raising quality of life is subjective, but having more disposable income to spend is good for business and the economy.
“Historically, people that have argued against increasing the minimum wage have predicted dire consequences,” Richardson says. “Obviously, history does not bear that out.”
About 1,000 large and small businesses, representing all 50 states, support the increase on the grounds that the boost in purchasing power will aid economic recovery, according to businessforafairminimumwage.org.
On the other hand, raised prices, layoffs and fewer new jobs are possible consequences as a result of the increase as businesses already taxed by the recession struggle to meet the new requirements, Richardson says. Because Louisiana businesses have remained somewhat insulated from the recession, the impact on individual businesses is difficult to gauge.
Washington-based conservative think tank The Heritage Foundation called for a postponement of the increase earlier this year, citing a 10% increase in the cost of hiring unskilled workers. Their position is that minimum wage requirements increase unemployment, something that the already taxed economy cannot afford.
“Employers have known about this for a while and have been easing into it,” Richardson says. “They’ve had the opportunity to prepare and depending on the changes in the economy, the impact of this really depends on the individual employer. Some will be hit harder than others.”
Show them the money
The history of federal minimum wage rates under the Fair Labor Standards Act since 1978:
Jan. 1, 1978 $2.65(1)
Jan. 1, 1979 $2.90
Jan. 1, 1980 $3.10
Jan. 1, 1981 $3.35
April 1, 1990 $3.80
April 1, 1991 $4.25
Oct. 1, 1996 $4.75
Sept. 1, 1997 $5.15
July 24, 2007 $5.85
July 24, 2008 $6.55
July 24, 2009 $7.25
(1) Adjusted for inflation, this would be $8.77 in today’s money—or $1.52 higher than the current minimum wage
SOURCE: U.S. Labor Department
