'Fair' wage unfair for business?
Times Staff Writer
Originally published 2008-09-11



Noticed a hike in the cost of meals at local restaurants?
It may not all be due to higher cost of food. Local businesses are still struggling to come to terms with an amendment to the Colorado constitution that requires annual adjustments to the state's minimum wage -- and restaurants have been hit hardest.
That's because the minimum wage for tip-earners has nearly doubled in the last year-and-a-half.
Colorado voters passed Amendment 42 in 2006, which increased the state's minimum wage from $5.15 to $6.85 and from $2.13 to $3.83 for tipped employees. It also included a provision that increases the minimum wage annually, dependent upon inflation.
So, on Jan. 1, the wage rose again to $7.02 and $4 hourly for tipped employees.
The amendment further tightens the vice for restaurants having to cope with higher food costs. A few local restaurants have joined in a lawsuit over the state constitutional amendment (see related story A11).
Since January 2007, when the minimum wage amendment took effect in Colorado, labor has been biting further into restaurant's profits.
On the other hand, employees are more than happy about the boost in pay.
Heidi Rogers, 36, recently left her job as an insurance agent to wait tables at the Quarter Circle in Gunnison. She said it was mainly to be able to spend more time with her kids, ages 4, 5 and 14.
But she expects to make about the same amount of money as she did selling insurance -- minus the benefits. She anticipates bringing home the majority of her income -- as much as $100 a day -- in tips alone.
Under current Colorado law, a waiter or waitress making minimum wage would earn an additional $32 for an eight-hour day.
Tips are definitely where servers make their money, Rogers acknowledged, "as long as business is good."
Due in part to a tight labor market, most Gunnison Basin businesses pay above minimum wage. But even the ones that do so are still affected by increases to the minimum wage, some managers and owners say.
Paul Nelson, owner of the Gunnison McDonald's, said the business pays above minimum wage for starting employees. However, when the minimum wage increases annually -- and grows closer to what employees already earn -- the restaurant is forced to increase wages to remain competitive and keep workers.
That, ultimately, means higher prices for consumers. "The (price for a) Big Mac gets raised," said Nelson, who owns eight other McDonald's franchises in Colorado. "The consumer pays for everything."
Cutting into the bottom line
Traci Busse, who owns Garlic Mike's with her husband and keeps the restaurant's books, said the business currently employs about 12 servers, all of whom earn minimum wage aside from tips. The annual increase, she expects, will be particularly difficult.
The cost of payroll for the business was up 13 percent in 2007, and as of the end of July it was up another 17 percent from the same time last year.
"There's really not a lot of room for cutting back (staff) without sacrificing service," said Busse. "We're just making a lot less money. Our bottom line is significantly affected by this."
With both the added payroll expense as a result of the minimum wage increase and higher food costs, Garlic Mike's can't raise prices enough to compensate, said Busse.
Small, service sector businesses in Gunnison make most of their money in the summer, she added. "I don't know anybody who makes enough profits that they can absorb this."
That's one reason why the Colorado chapter of the National Federation of Independent Business opposed the measure prior to it passing, said state director Tony Gagliardi.
"The small business person ... has to pay a lot of attention on managing cost," he said. If labor costs become too much, "they make cuts to inventory purchases, planned expansion and planned hiring," he said.
But some high-end restaurants in the valley seem to be less affected by the doubling of minimum wage for servers.
Jason Vernon, owner and chef at Soupcon in Crested Butte, said the restaurant slightly increased the wages for servers in recent years, but the business already paid them above the minimum wage and so hasn't been much affected.
Retail and lodging establishments are also a little more insulated from the state's minimum wage increase, because they aren't having to deal with the doubling of wages for servers.
Crested Butte Lodging and Property Management General Manager Wanda Bearth said even high school-aged employees hired to do odd jobs are paid more than the current minimum wage.
Mary Esther Field, owner of Circus Train in Gunnison, said she too already pays higher than minimum wage for starting employees. She voiced one concern with the annual increase, however. "Just because inflation goes up, it doesn't mean business is," she said.
But many local business owners and managers maintain: It's not that they're against a fair wage.
"I have no problem with the regular minimum wage going up," said Busse. "But when you're looking at the majority of our people being servers, who work based on tips to begin with, to double their wages has to have a huge impact on small businesses."
She added, "When the economy's so bad, we're making less money to begin with."
An age-old argument
The debate over whether minimum wage levels the playing field or creates unemployment has been ongoing for decades.
Colorado and 23 other states posed the question on state ballots in 2006 after the federal minimum wage hadn't been raised since 1997. The higher of the two takes precedent.
The fact that the minimum wage hadn't increased at either the federal or state level is one reason the Bell Policy Center supported the measure, said Rich Jones, director of policy and research for the Colorado think-tank.
Bell calculated that 138,000 workers below, at or just above the minimum wage in Colorado would see a pay raise as a result of Amendment 42 passing, he said. The policy center also supported the constitutional amendment, rather than it be written into statute, so that wages didn't increase "and then just sit there and stagnate," he added.
That has been a major concern for opponents of the amendment, including NFIB in Colorado, which has 116 members in Gunnison County. Because it's a constitutional amendment, in times of economic downturn, for example, there's nothing the legislature can do to alter it.
There's another effect Colorado NFIB Director Gagliardi fears from a higher minimum wage.
"Employers will usually expect better qualifications as the minimum wage goes up," he said.
That could have a negative effect on entry level, young and disabled workers. "It has an adverse effect on those it's trying to help," Gagliardi added.
Western State economics professor Scott Lazerus -- who specializes in labor, policy and low-income issues -- also expressed wariness about minimum wage increases being written into the state's constitution. "It seems to me that should be the job of the legislature," he said, "but then it becomes a political hot potato."
Lazerus noted that the current minimum wage is still lower in real terms (inflation adjusted) than it was in the 1960s and '70s. That's because during the '80s and '90s it wasn't raised to keep up with inflation.
"It's better for everyone if it gradually changes," he said. "It's understandable that businesses don't want to pay a higher wage, but there hasn't been much evidence that it puts people out of business."
Still, some believe the state's current minimum wage doesn't suffice.
Eva Tenesaca, 21, who works at Subway in Gunnison, makes just above minimum wage. Even that, she said, isn't enough to cover her rent, food, clothing and other necessities in Gunnison.
"It's not enough," she said, "but it's better than nothing."
(Will Shoemaker can be contacted at 970.641.1414 or will@gunnisontimes.com)