For retailers and restaurants, minimum wage talk hits hard

In this last in a three-part series on the potential effects of raising the Vermont minimum wage, VTDigger looks at the impact on the retail and hospitality sector of providing the increase. Here is Part 1 and Part 2.

For all the talk about wage inflation, there are still workers in Vermont earning the state-mandated minimum wage of $10.78. Rep. Mike Marcotte knows some of them, because they work part-time at the convenience store he owns in Newport.

“That wage is all the business can support,” said Marcotte, a Republican from Coventry who is chairman of the House Committee on Commerce and Economic Development.

Marcotte is one of the business owners watching closely as the Legislature considers a proposal, S.23, to raise the Vermont minimum wage to $15 by 2024. He said he’s worried that mandating a higher wage would hurt small businesses like his.

“There’s a question of whether we are actually going to help a lot of people by raising it, or we’re going to harm a lot of people,” said Marcotte. “What may happen is that instead of these businesses being able to raise their prices in order to keep up with the payments they have to make up on increased labor costs, they start laying people off or cutting hours or working more themselves.”

There’s no widespread agreement among economists, in Vermont or nationally, about what would happen to jobs and employment if Vermont raised the minimum wage to $15. There isn’t precedent for such a large wage increase, so there is no research examining the impact. Supporters of raising the minimum wage say the overall effect would be an increase in the quality of life for thousands of workers; opponents say it would endanger small businesses.

A 40 percent wage increase is “uncharted territory,” said Professor Thomas Kochan, an economist at the MIT Sloan School of Management. While there’s little information about the impact now, “Those studies I’m sure are going to be carried out in the next few years, because there are all kinds of states doing this. The $15 minimum wage has become a visible goal or target.”

Many business owners and managers in Vermont say the minimum wage discussion doesn’t apply to them, because nobody in their company is making less than $15 now. But that’s not the case in the retail and hospitality industry, which employs much of the state’s minimum wage workforce. Managers of those businesses have told state lawmakers that the increase would harm them and workers would lose their jobs. The Vermont Department of Labor considers the retail industry to be one of the industries most vulnerable to a minimum wage increase.

The restaurant industry is also affected by minimum wage increases. Tipped workers, such as waitstaff, cannot earn less than half the minimum wage. Therefore, as the overall minimum wage goes up, so too does the tipped workers’ minimum. Under state law, if the basic minimum wage and tips don’t bring servers’ hourly pay up to the general state minimum wage, employers pay the difference. Some restaurant owners would like to see the issues separated, so when the general minimum wage is raised, the tipped wage doesn’t automatically rise too.

“Arbitrarily increasing the minimum wage to $15 by 2024 does not address the underlying issue of Vermont’s lack of qualified employees; and is unsustainable for many of the very small businesses in rural areas of the state,” Erin Sigrist, president of the Vermont Retail & Grocers Association, said in written testimony to the House Committee on General and Military Affairs in January.

Sigrist added labor costs for her association members would be multiplied because of obligations like worker’s compensation and unemployment insurance.

“For every dollar of wages paid, the employer incurs another 12 to 20 cents in additional taxes or fees,” she said.

Charles Martin, government affairs director for the Vermont Chamber of Commerce, said the proposal effectively raises wages by 40 percent by 2024, “when most Vermont businesses will not see equivalent revenue increases to offset such cost pressures.”

The issue of the minimum wage is a tricky one for Vermont retailers, because there is widespread support in the Legislature, and among the people who elected them, for doing more to help workers out of poverty.

The Legislature’s Joint Fiscal Office has estimated that it would take an hourly wage of $13.34 for half of a two-person household to afford necessities like food, child care, health care, telecommunications and shelter.

Because so many Vermonters support raising the wage, many business owners contacted by VTDigger declined to talk on the record about the issue.

“I think overall, employers do their best to take care of their employees as best they can,” Marcotte said. “You worry about people, and even though they are part-time they count on that wage. And they also count on the experience that they are getting in the workplace. We have to have the ability to afford to hire them.”

Neither side has the data needed to assess the probable impact of the Vermont proposal, because it is too early to see the long-term impact of similar wage increases that have happened recently elsewhere in the country. However, interest groups have worked to come up with some estimates. The New York City Hospitality Alliance in January released survey data showing that more than three-quarters of the full-service restaurants in the city reduced employees’ hours in response to a wage increase that went into effect Dec. 31, from $10.40 per hour to $11.10 per hour. The Hospitality Alliance said more than a third of the survey respondents reported they eliminated jobs in 2018.

The National Federation for Independent Business is opposing a proposed federal minimum wage increase on the same grounds. The group estimates that raising the federal minimum from $7.25 an hour to $15 an hour by 2024 would reduce private sector employment by 1.6 million jobs and reduce cumulative U.S. output by $2 trillion between 2019 and 2029.

The JFO estimated there would be some job loss if the proposed minimum wage increase went into effect in Vermont. The office said in its fiscal note on S.23 that consumer prices could increase slightly because the cost of doing business would rise, and more people might enter the labor force to take jobs with higher wages.

There would also be complex effects like a reduction in federal aid to Vermont if workers lost their eligibility for federal benefits, noted Tom Kavet, an economist who works for the JFO.

“The fact that we’re projecting out to five years of changes adds to the uncertainty about what the effects would be,” he said. “It has never happened in the past.”

Bill Stritzler, the director of Smugglers’ Notch ski area, told lawmakers that the minimum wage increase could damage employers if the economy contracts.

Right now, the Vermont minimum wage is linked to the Consumer Price Index, which itself is linked to inflation. Smugglers has 400 employees, one-third of them seasonal workers who earn the minimum wage.

“Our greatest fear is the ability to manage in bad times,” said Stritzler, who testified on behalf of the Vermont Ski Areas Association. “There are many predictors of recession within the next year or so.”

If business drops by the mandated pay raise remains, “the unintended consequences will be significant,” Stritzler said. “Even the most liberal economist would not suggest pay increases seven times the inflation rate during a recession.”