Minimum wage, maximum impact

Feb. 14, 2007
Although a bill proposing to hike the minimum wage by 41 percent passed in both houses of Congress, the National Restaurant Association isn't slackening its opposition to the measure.
While outgoing NRA president Steven Anderson concedes that some sort of minimum wage increase is likely, to pass a wage hike without accompanying tax breaks for small businesses would be a disaster for the restaurant industry. Any bill without those offsets is unacceptable, he said.
The Senate approved the bill, the Fair Minimum Wage Act of 2007, on Feb. 1 after adding several tax breaks designed to offset the bill's impact on small business. The bill, which proposes to raise the federally mandated minimum wage by $2.10 — from $5.15 to $7.25 — over the next two years, would dictate the first increase in the minimum wage since 1996.
"We opposed the House bill because it didn't have the offsets for small business and restaurants," Anderson said. "We continue to oppose government-mandated increases in the minimum wage, but if it is going to increase, we want to make sure that those offsets are there for small business."
The Senate bill includes $8.3 billion in tax breaks designed to help small businesses cope with the effects of a minimum-wage hike. Proposed measures would allow small businesses to deduct $112,000 in new investments and would shorten the depreciation period for improvements to retail properties.
The bill also would extend for five years the Work Opportunity Tax Credit, a credit for small businesses that hire low-income or disadvantaged workers.
The House of Representatives passed its own version of the bill in January. Although the original House bill didn't include the offsets the NRA is seeking, on Feb. 12 the House Ways and Means committee approved a modest $1.3 billion tax-relief package to be included in the bill.
Included in the tax-relief package is a one-year extension of the WOTC as well as the $112,000 new-investment deduction. Also included is the adjustment on a tax credit for restaurant owners with tipped employees, who earn more than the minimum wage when cash tips are counted as part of their pay.
However, the accelerated depreciation included in the Senate version of the bill wasn't part of the House package.
The NRA was grateful that the Ways and Means Committee added the tax breaks, but was disappointed that the bill didn't include the depreciation package, Anderson said.
Both the House and the Senate versions of the bill must be reconciled before going to the president's desk. President Bush has said he wouldn't sign a minimum-wage bill unless it included tax breaks for small business and restaurants.
Despite the efforts of the NRA and others, "We still have a lot of work to do," Anderson said.
Higher wages could chill hiring
According to the Economic Policy Institute, a labor-supported research group, increasing the minimum wage would directly impact 6.6 million workers currently earning $5.15 an hour. An additional 8.3 million workers earning slightly more than the minimum wage would be affected as well, the EPI said.
However, restaurant industry officials say hiking the minimum wage would dissuade businesses from hiring entry-level workers and increase unemployment.
Already an Arizona minimum-wage law, that went into effect in January, is impacting the states teenage workforce.
Mark Messner, owner of Pheonix-based Pepi's Pizza, told the Arizona Republic this month that he has employed about 2,000 high school students since 1990. But because of the mimimum-wage increase, his payroll costs have risen 13 percent and he is having to cut back on his employees' hours.
"Many small businesses operate on thin profit margins," said Matthew Shay, president of the Washington, D.C.-based franchising trade group, the International Franchise Association. "A 41 percent increase in the starting wage will force difficult staffing and pricing decisions for franchised businesses, which may ultimately force them to close their doors permanently."
A survey conducted by the National Restaurant Association found that when the minimum wage was raised in 1996, restaurant operators cut 146,000 jobs from their payrolls and postponed plans to hire more than 100,000 employees.
The total employment impact of the wage hike was 252,000 jobs in the restaurant industry, according to NRA figures.
Price increases also may be in the offing. When Ohio raised its state-mandated minimum wage to $6.85 from $5.15 at the beginning of January, many operators were forced to enact a price hike to make up the shortfall.
"I'm sorry we had to raise our prices," said Mike Frangos, president of the six-unit Rascal House Pizza in the Cleveland area. "But with a 30-percent increase in the minimum wage, it's like adding an additional person for every three people you have on staff."
Some operators, however, predict a minimum wage increase would have little impact on their businesses. Many already are paying wages higher than the minimum in order to attract the best workers.
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"I want quality people working for me, so I'm willing to give them a higher wage," said Mary Wallace, owner of Order's Up, a fast-casual restaurant in Louisville, Ky. Wallace starts new employees at around $8 an hour.
"A lot of times, though, you can't find anybody at $8," Wallace said. "My employees can't live on that."
A silver lining
Not everyone is seeing doom and gloom if the minimum-wage bill is passed. Businesses offering self-service technology are hoping for a boost as restaurants seek to replace unskilled workers with devices such as self-service order pads.
Van Nuys, Calif.-based uWink debuted its first uWink Media Bistro in Los Angeles in October. The company plans to begin a nationwide expansion in 2007.
The concept, developed by Chuck E. Cheese founder Nolan Bushnell, features touchscreen ordering pads at customer tables. The pads also function as video-game consoles.
Calvin Watkins, manager of Baltimore-based Chosen Media Inc., sees the minimum-wage increase as the first step in pushing restaurants down the path followed by banks, where customers interact with technology more than people. Chosen Media sells touchscreen technology similar to that used by uWink.
According to Watkins' calculations, a typical 40-table restaurant requires one server for every four tables, or 10 servers per shift. Adoption of touchscreen technology could cut that number down to one person for every 10 tables, or two servers per shift.
Those two people would mainly function as food runners, Watkins said.
In its 2007 forecast, the NRA named self-service technology its No. 2 trend to watch for full-service restaurants. Presently, only about 3 percent of fast-casual operators and 4 percent of fine-dining restaurants offer self-service technology, according to the forecast.
Adoption of self-service technology isn't a matter of if, but a matter of when, Watkins said.
"It's going to be a generational thing. Our generation is always going to want that interaction, but the younger generation has grown up with technology," he said.

Topics: Operations Management

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