News Column

Business Owners, Experts Divided Over Minimum Wage Increase

Feb 22, 2013

Patrick McCreless, The Anniston Star, Ala.

The combined annual earnings of more than 1,800 Calhoun County workers could rise by $6.6 million if a recent minimum wage increase proposal is approved. But some economists and business owners are divided about whether the increase will help or hurt the economy.

During his recent State of the Union address, President Barack Obama proposed increasing the minimum wage to $9 per hour from $7.25 an hour. Some argue the increase will stimulate spending and spur job creation while others say the added cost will mean layoffs, work-hour cutbacks and higher prices for consumers.

According to the U.S. Bureau of Labor Statistics, the county has an estimated 1,826 full-time workers who earn at, a little under or a little above the minimum wage. An additional $1.75-an-hour increase in their wages would average out to about $6.6 million in additional earnings annually.

Good for some, a concern for others

"Any time there is a rise in minimum wage, it's always good for some people ... people making minimum wage, they are abundantly happy about it," said Ahmad Ijaz, director of economic forecasting at the Center for Business and Economic Research at the University of Alabama. "It raises people's wages and they have more purchasing power."

However, Ijaz said a minimum wage rise could also have a negative impact on some businesses and workers.

"Employers have to pay for it and have to pass that along to consumers," Ijaz said. "It also results in layoffs, but it's hard to pinpoint where those layoffs will be."

David Neisler of Jacksonville, who owns five McDonald's restaurant franchises in Jacksonville, Piedmont, Roanoke, Ashland and Heflin, said he can see pros and cons to a minimum wage increase.

"I see the benefit of it ... you can't disagree with the intent; to raise workers up to a more middle-class wage," Neisler said.

Neisler added, however, that the result of a minimum wage increase at his and other small businesses would likely mean fewer employees. Neisler said the biggest impact would likely be on younger, part-time workers -- those who are holding jobs for the first time and are learning how to work.

"My fear is many employers, including myself, couldn't have as many of those workers," Neisler said. "We simply couldn't afford it."

Neisler said he's more inclined to pay wages determined by the free market.

"With a minimum wage increase, you've got to be competitive with it," Neisler said. "It forces your hand and can be a little frustrating."

Broader effects

To Robert Robicheaux, chairman of the department of marketing, industrial distribution and economics at the University of Alabama at Birmingham, a minimum wage increase would do more harm than good to the economy.

"I believe that it is anti-competitive action in the marketplace," Robicheaux said. "It's good for the individual but bad for the system."

Robicheaux said that due to the still-weak nature of the economy, few businesses would be willing to pass the cost of a wage increase on to consumers and risk a drop in revenue.

"What they are likely to do is cut back on work hours or curtail workers," Robicheaux said. "Many workers would go from full-time to part-time status and we'd see a significant decline in employment."

Doug Hall, director of the Economic Policy Institute, disagrees with Robicheaux, saying any negative impacts from a minimum wage increase will be balanced out by a rise in spending. The Economic Policy Institute is a Washington D.C.-based nonprofit that advocates for low-income families and assesses current economic policies.

Hall said low-income earners on minimum wage tend to live from paycheck to paycheck, so they often spend money faster and more completely than higher-income earners.

"They've got debts they need to pay or they have a fridge they need to replace ... that translates to a higher gross domestic product and job creation," Hall said.

Hall said he could imagine a minimum wage increase that would result in significant job losses, but a jump to $9 an hour is not it. Raising the minimum wage to $9 an hour will only put it in line with current inflation rates, he said.

"If it increased to $19 or $20 an hour, then you'd find businesses that would have to have layoffs," Hall said.

Wayne Reaves of Pell City, who owns nine Jack's restaurant franchises in Anniston, Lenlock, Coldwater, Oxford, Munford, Talladega, Sylacauga, Heflin and Pell City, said a minimum wage increase would likely be bad for many workers, particularly since unemployment remains high and consumer purchasing is low compared to levels before the 2008 housing market crash.

"A minimum wage increase at this time is a terrible idea," Reaves said. "If minimum wage goes up, we'd possibly reduce our hours of operation and reduce the number of workers."

Reaves said an increase in the minimum wage would also hurt his ability to offer raises to keep good employees. He said the average wage at his restaurants is $8 per hour -- above the minimum wage -- and several workers earn $9.50 or $10 an hour.

"When I'm forced to pay an inflated wage, if people need more, there's absolutely no way to do that," Reaves said. "If the minimum wage goes up to $9 an hour, there's no way I can ripple wages up."

Source: (c)2013 The Anniston Star (Anniston, Ala.). Distributed by MCT Information Services.

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