Education & Workforce Development and Government

Minimum wage set to increase: Small-business owners bracing themselves for change

April 30, 2007

Jeff Coppinger just can't support legislative efforts to raise the minimum wage.

Part-time employees at his Lazy Daze Coffee House in Irvington start at $6 an hour and top out at about $8-well over the $5.15 hourly minimum. But he knows that won't be good enough if a pending federal rate change passes.

"In the past, I've always been a champion for raising the minimum wage," said Coppinger, who opened his business in 2003. "But now that I'm in business, I'm thinking it's just going to create hyper-inflation."

A proposal to raise the minimum wage to $7.25 an hour will cost his business at least $1,100 a month in additional payroll, he said. As a result, he said he'll raise prices and drop at least two of his five employees.

If his situation is typical, it's no wonder small-business advocates have been fighting efforts to hike the minimum wage.

Opponents say the government should let the market drive wages and concentrate legislative efforts on finding money to fund training programs. Proponents, on the other hand, insist the increase is necessary because even the higher wage isn't enough to live on.

Indiana lawmakers tackled the issue this year, ultimately passing a bill that would for- mally link the state minimum to the federal rate-which pending legislation would increase to $7.25 over two years. In states where the federal and local rates differ, the higher wage usually prevails.

Of the roughly 1.8 million workers in Indiana who are paid hourly wages, only 6,000-a third of 1 percent-earn $5.15 an hour, according to 2005 statistics from the federal Bureau of Labor Statistics. That number doesn't include the 31,000 Hoosiers who earn only about $2.13 an hour because they work for tips.

"The minimum wage now of $5.15 has almost no impact," said Jerry Lynch, a professor of economics at Purdue University. "When it goes to $7.25 an hour, it will hit a lot more people."

Small retail businesses-like Coppinger's coffee house-expect to bear the brunt of the pain of the increase, according to a national study released this month by Pittsburgh-based PNC Financial Services Group.

More than three-quarters of small-business owners who responded said the pay hike would have little or no impact on them. But small retailers are bracing themselves-29 percent said they would reduce hiring and 19 percent said they'd cut existing employees.

Take Indianapolis restaurants, for example. While few pay just $5.15 to non-tipped employees, raising the minimum is likely to put pressure on other wages. And managers could cut positions to keep expenses down, said John Livengood of the Restaurant & Hospitality Association of Indiana.

"People will reduce the labor force and maybe hire more experienced workers that are more productive rather than taking a chance on entry level workers who need training," he said.

Purdue's Lynch agreed that some workers will get lost in the shuffle.

"One of the harsh facts of the market is that people are typically paid what they're worth," he said. "Some people are not going to be worth $7.25 an hour, so they'll lose their jobs. But others will benefit."

Business groups fighting the increase dismiss proponents' living-wage argument, saying most minimum-wage earners are teenagers working part time for supplemental income-not adults supporting a household.

Federal stats seem to support this. Of the 479,000 people nationwide earning $5.15 an hour, 59 percent are between 16 and 24 years old and 70 percent are working parttime jobs, according to the BLS.

Still, at least two neighboring states increased their state minimum wage requirements last year: Ohio boosted its rate to $6.85 an hour, and Michigan's is set to go to $7.40 an hour by mid-2008.

Since the change, reports show that part-time summer work has been scarcer, said Kevin Hughes, Indiana director for the National Federation of Independent Business.

"There's just not as much of a job market for teen-agers," he said.

Wage-hike proponents aren't buying it, though. They say youngsters aren't the only workers making the minimum, and even at $7.25 an hour-which adds up to $15,080 a year for a full-time worker-people would be struggling to make ends meet.

"My feeling is that responsible employers in Indiana have long passed this wage level," said Nancy Holle of the Indianapolis-based Community Faith and Labor Coalition.

Take Juan and Alba, for example. The Indianapolis couple declined to give their last names, but said an increase would help them contribute more to their household, which includes nine people.

Juan, 20, works full-time days at a warehouse job that pays $6.50 an hour and another 20 hours in the evenings for a cleaning service that pays about $6 an hour. Alba, 23, goes to a continuing-education class with their 3-year-old daughter during the day and joins Juan cleaning at night.

Alba said she rarely buys her daughter new clothes or toys.

"She's old enough to ask for things," she said.
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