Minimum-wage hike would cost businesses

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Raising the federal minimum wage in Pennsylvania – and the potential impact it could have on business – is an issue that shows both positive and negative effects on the local and national economy, according to members of the business community of the Greater Lehigh Valley.

As the Senate is expected to vote in about a month on an increase in the federal minimum wage, in three steps from $7.25 to $10.10 an hour, the issue is gaining traction.

Some say a higher minimum wage could create increased spending for consumers, lower employee turnover and result in happier, more productive employees.

Others say it could lead to higher prices at restaurants, massive job cuts and greater costs for business owners.

“It certainly will be good for those people that are technically at the poverty line,” said Tony Iannelli, president and CEO of the Greater Lehigh Valley Chamber of Commerce. “I think it’s definitely a bump in the economy.”

However, the issue is not without concerns.

Iannelli questioned the ripple effect of raising the minimum wage to $10.10, noting that other employees could, in turn, see their wages go up. He also wondered what the increase would cost businesses.

“You might have some employees making more; the bad news is in order to make these economics work, you’ll see layoffs,” Iannelli said.

While a hike could lead to more consumers spending additional money, those who are making minimum wage are at the borderline poverty level and principally spending money on basic necessities rather than making investments and buying properties, Iannelli said.

The Pennsylvania Chamber of Business and Industry recently outlined its position on the issue after hearing the results from the Congressional Budget Office report on the impact of government-mandated minimum wage increases on employment.

Gene Barr, president and CEO of the Harrisburg-based organization, said in a news release that Pennsylvania should look for new ways to provide low-wage workers in lower-skill jobs with better opportunities, “but mandated wage increases are absolutely not the answer.”

“Focusing on closing the state’s skills gap and getting these men and women the training they need to secure good-paying, family-sustaining jobs is far more effective; and it is a solution that benefits the state’s entire economy,” Barr said.

Laura Long, chamber executive for the Whitehall Area Chamber of Commerce, said the state chamber’s response is supported by the Whitehall Chamber.

“It really confirms what employers concerns are,” Long said. “We are all for everyone getting the pay they deserve. What employers are having concerns about, especially smaller ones, is if there is a hike, are employers going to be able to hire?”

The act also calls for increases to the minimum-wage base pay for employees who receive tips to $3 an hour – from $2.13 an hour.

The act calls for subsequent annual increases in the minimum wage so that the base pay for tipped workers eventually reaches 70 percent of the full minimum wage in effect for other employees.

A raise in the minimum wage could mean more job cuts, Long said. Since Whitehall is known for its many retail establishments, a raise in the minimum wage could have an effect on these businesses.

“The industries that would be impacted that I’ve heard from would be retail and restaurants, day cares,” said Ellen Horan, president and CEO of the Greater Reading Chamber of Commerce & Industry. “Also, nonprofits is another area that may have a difficult time with a significant increase in the minimum wage as is proposed.”

Moving the minimum wage from the $7 per hour range to the $10 per hour range is a pretty hefty increase for these industries, Horan said.

“The other group that could be adversely impacted is our youth,” she said. “Coming up on the summer months, the number of jobs available may be decreased if there is a significant increase in the minimum wage as proposed.”

Hiking the minimum wage, or even the basic idea of a minimum wage, often is debated on ethical and social responsibility grounds as well as economic, said Parveen P. Gupta, chairman and professor of accounting at Lehigh University in Bethlehem.

“Economically speaking, raising minimum wage either reduces business profits to increase consumer prices or lays off workers,” Gupta said. “In other words, it interferes with market mechanisms.”

However, on moral and social responsibility grounds, should the workers who are not able to band together to muster enough bargaining power be left to suffer on their own without the protection of the law? Gupta also questioned whether society has any basic decency to provide workers with an opportunity to live a life not at the poverty level.

“It is not a simple issue to rule on,” Gupta said. “As you can see, there are pluses and minuses of both views.”

The restaurant industry has been one of the only industries that continues to create jobs and provide opportunity to displaced workers during the recession and economic recovery, said Scott DeFife, executive vice president of policy and government affairs for the National Restaurant Association, a trade group based in Washington, D.C.

“Our industry is an industry of opportunity; 90 percent of salaried restaurant workers began their careers working as hourly employees,” DeFife said. “Restaurants continue to be critical employers that train America’s workforce and provide a pathway toward upward mobility and success.”

Dramatic increases to the minimum wage are not a real, comprehensive solution to income inequality in this country, DeFife said.

To better lift people out of poverty, there must be a focus on pro-growth policies and increased access to education and job training, which are far more proven, effective ways to have a more meaningful impact on an individual’s earning potential, he added.

“The very competitive food industry makes it very difficult for retailers to increase prices to consumers,” said David McCorkle, president and CEO of the Pennsylvania Food Merchants Association, an organization in Wormleysburg that represents supermarkets, convenience stores and independent grocers throughout the state.

To keep the total payroll at roughly the same level, food merchants would have to reduce hours for employees and not hire as many workers, McCorkle said.

“The wage issue is something that should be handled by the private sector,” he said, rather than having mandated salary increases from government sources.

As the owner of several businesses in Berks County, Hamid Chaudhry said a hike in the minimum wage would put a lot of his employees, many of them teenagers, out of work.

Chaudhry’s businesses include the Dairy Queen restaurants in Kenhorst, Exeter and Wyomissing and The Mustang Grill, a Mexican restaurant in Kenhorst.

Chaudhry questioned why the government should enforce a pay increase for workers rather than letting employers and the market decide.

“I have a lot of teenagers; you are putting a lot of 16-year-olds out of work,” Chaudhry said. “Twenty percent of our workforce is made up of ex-convicts. All you are doing is putting them out of work.”

An immigrant from Pakistan, Chaudhry said he moved to America because of capitalism. He said the free market should decide on the minimum wage issue since the country was based on this model.

“Why are we artificially setting up the market? …,” Chaudhry said. “Nobody makes minimum wage unless they are fresh out of prison or teenagers.”

Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it.

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