Human Capital & Careers

State Minimum-Wage Votes May Pressure Congress to Act

Four states passed proposals to increase the minimum wage, adding to the growing support for higher pay floors for U.S. workers.
Sean AlloccaNovember 17, 2016
State Minimum-Wage Votes May Pressure Congress to Act

Employees at low-paying jobs in four states can expect a raise next year after voters passed proposals on Election Day to increase the minimum wage. Arizona, Maine, and Colorado plan to gradually increase the wage floor to $12 from an average of just under $8 by 2020. Washington will hike an already above-average $9.47 an hour to $13.50 an hour over the same period.

Experts say costs will likely be passed on to consumers, or companies will be forced to cut jobs to absorb the additional expense. A Congressional Budget Office report from Feb. 2014 found an increase to $10.10 an hour at the federal level would put an estimated 500,000 jobs at risk.

But the increases may represent a building sea-change in public opinion away from business interests.

Costco raised base pay for entry-level employees for the first time in nine years in March. Wages increased $1.50, to $13 an hour. The company estimates the move will cost investors two pennies a share for the next three quarters.

“It’s like chicken soup,” CFO Richard Galanti said during an earnings call in March. “It can’t hurt.”

In April, New York enacted a statewide plan to gradually push wage floors to $15 an hour by 2020. The change will happen sooner for many New York City businesses. For Big Apple businesses with more than 10 employees, the minimum wage hits $15 an hour at the end of 2018.

For advocacy groups, the wide-ranging support for the ballot proposals from constituencies ranging from the West Coast to New England is an encouraging sign for a potential federal increase. Holly Sklar, CEO of Business for a Fair Minimum Wage, says the lowest mandatory wages have lagged far behind cost-of-living expenses for the better part of five decades. The high-water mark was 1968, when the federal wage floor hit $11.10 an hour in today’s dollars.

“This election reinforced just how much support there is for raising the minimum wage,” Sklar says. “Voters from four very different states from four very different parts of the country agree.”

Sklar and others are calling on Congress to follow suit.

But executives say higher wages are causing serious headwinds for companies, especially in the retail and restaurant industries. The Duke/CFO Business Outlook survey from July found that increasing the minimum wage was a top-five concern for U.S. executives in 2016. Thirty-two percent of respondents last July said potential hikes are a source of worry, topped only by last week’s presidential election, Washington dysfunction, and proposed regulations.

The Colorado Restaurant Association fought against the minimum-wage ballot proposal, saying restaurants and the service industry are disproportionately affected. Because restaurants often employ low-paid workers who also earn tips, they may find it almost impossible to meet the mandatory increase. The Colorado amendment would raise the minimum wage by 44% and tipped wages by 70%, according to the association.

While increases may dent companies’ finances in the near term, proponents argue wage hikes are actually investments in local businesses and the economy at large. Because employees are also consumers, raising the minimum wage increases consumer demand by putting money back into the hands of potential customers. Companies usually have more customers than workers.

Low-wage employers commonly have higher turnover rates than other companies, as well. Paying employees more gives them more incentive to stay with the company, cutting the turnover rate and effectively lowering costs incurred while hiring new employees, like paying for additional training, managerial oversight, and product waste. Increased productivity and customer satisfaction are also benefits of a better paid and more committed employee, backers of minimum-wage hikes say.

“There’s an expectation in this country that if you work full-time year round that you won’t be living in poverty,” Sklar said. “Too many workers are living in poverty.”

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