Minimum wage hikes trigger 'payroll tsunami,' as small businesses cut back
Small business owners across the country are beginning to feel the pinch as more states move toward a $15 minimum wage.
While proposals to raise pay are intended to help workers, several mom-and-pop coffee shops as well as restaurants are responding by cutting hours, eliminating jobs or closing down entirely because they can't keep up with rising wages under the law.
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It's the ugly side to the highly touted wage hikes, economists say, adding that the bumps can unleash a "payroll tsunami" for smaller businesses already stretched thin from rising rents and soaring health care costs.
"For some of these businesses, the minimum wage hikes tip the balance between staying in business and going out of business," Panos Mourdoukoutas, professor of economics at LIU Post in New York, wrote in Forbes.
Boston's iconic restaurant Durgin-Park in Faneuil Hall was forced to shutter its doors in January after nearly two centuries in business. The owners said they couldn't keep up with the wages and health care premium hikes.
“We’d been thinking about [closing] for the last year,” Michael Weinstein, CEO of Ark Restaurants, which purchased Durgin-Park in 2007, told Boston.com. “First of all, our landlords are terrific. It’s an expense problem that we’ve been facing. We [own] several venues across the country that are facing a minimum wage increase. As part of that, we’re facing an increase in liability, property and health insurance.”
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After winning her House race last year, New York Rep. Alexandria Ocasio-Cortez, D-N.Y., "swung by" to say goodbye to the Coffee Shop in Union Square where she used to work.
She tweeted: "The restaurant I used to work at is closing its doors. I swung by today to say hi one last time, and kid around with friends like old times."
What she didn't say is that the popular coffee shop was closing its doors because it couldn't afford the $15 minimum pay raise that Ocasio-Cortez has gone on to strongly support.
“The times have changed in our industry,” co-owner Charles Milite told The New York Post. “The rents are very high and now the minimum wage is going up and we have a huge number of employees.”
The American Action Forum calculates that minimum wage hikes will kill 261,000 jobs -- with most of the losses concentrated in New York and California.
In just the last three months of last year, 4,000 workers lost jobs at full-service restaurants, Bureau of Labor Statistics data show. By the end of last year, there were fewer restaurant workers in New York than in November 2016, according to Investor's Business Daily.
Last month, Maryland became the sixth state in the nation to approve a gradual minimum wage increase to $15 an hour. The American Action Forum predicts the move could cost the state 94,600 jobs.
"For perspective, this is equivalent to eliminating nearly 50 percent of projected job growth between 2016 and 2026," Ben Gitis, director of labor market policy at American Action Forum, wrote. "Maryland is not in a strong position to absorb this shock, as it continued to experience below-average job growth while the state implemented its previous minimum wage hike from 2014 to 2018."
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But supporters argue the hikes are needed to address income inequality and also keep up with inflation. The issue has been widely embraced by Democratic candidates on the presidential campaign trail, with several backing a bill to raise the wage to $15 an hour at the federal level.
Sen. Bernie Sanders, I-Vt., a sponsor, has called the current minimum wage a "starvation wage."
California, Illinois, Massachusetts, New Jersey and New York all have approved a $15 minimum wage, as has the District of Columbia. Phoenix employees are on track for the hourly pay bump on May 1. In all, there are 20 states that have or will move toward a $15 wage.