SalemNews.com, Salem, MA

June 26, 2013

Waging debate

Business owners fear effects of minimum wage hike

BY ETHAN FORMAN
STAFF WRITER

---- — For the owners of Bacci Chocolate Design in Swampscott, a hike in the minimum wage could take a real bite out of their profit margin.

“It’s going to eat into everyone’s margins,” said Carlo Bacci, of Reading.

In fact, he and his wife are so concerned about a Senate proposal, which would gradually raise the minimum wage to $11 an hour by 2015, that they submitted testimony against it to lawmakers.

Bacci and his wife, Erin Calvo-Bacci, say they pay their new hires a few dollars more than minimum wage. They operate a candy factory on Columbia Street in Swampscott and The Chocolate Truffle candy store in Reading. At this time of year, they have just three employees in Swampscott, including one who is part time, and the retail store employs about five people. In late August, the business hires four to five seasonal employees to gear up for the holidays.

If minimum wage goes up, however, the Baccis say they’d need to raise their employees’ salaries to stay competitive. And that, they say, would add to their rising cost of doing business, which includes everything from unemployment insurance requirements to the increased cost of peanut butter for their peanut butter cups.

“Increasing the minimum wage will not improve our commonwealth’s economy because we know that even if the minimum wage goes to $11 (an) hour, it will not help a primary financial provider survive. What is going to help them survive is having skill sets that are valued at a higher rate than minimum wage,” Calvo-Bacci wrote in her testimony to the Senate.

The bill, sponsored by Sen. Marc Pacheco of Taunton, would increase the state minimum wage from $8 to $11 at a time when President Barack Obama is proposing to raise the federal minimum wage to $9 an hour. Pacheco’s bill would increase the state minimum wage to $9 an hour 90 days after the bill becomes law; $10 an hour on July 1, 2014; and $11 an hour on July 1, 2015.

By 2016, the minimum wage would be adjusted for inflation.

The minimum wage for waitstaff would also go up. It’s $2.63 an hour for those who receive more than $20 a month in tips. The law says the wage with tips must be equal to the minimum wage. Under the bill, those depending on tips would receive at least 70 percent of the minimum wage, which would be $6.30 an hour at the $9 an hour rate.

But there is a lot of controversy about whether a higher minimum wage is a good idea. Many business people, like the Baccis, oppose it because it raises their costs. Advocates for the poor have been pressing for it as a way to help those at the bottom of the economic ladder. Economists are split, some saying it will hurt the economy, and others saying it will help.

State Sen. Joan Lovely, D-Salem, said she has not signed onto Pacheco’s bill because she is waiting to hear more debate about it. But she’s leaning in favor of some kind of increase.

“I am in favor of increasing the minimum wage for a variety of reasons,” Lovely said. One of her main reasons is that the minimum wage is so low that people who are out of work often prefer to stay on public assistance rather than work for minimum wage and make less money.

“If the numbers don’t add up, then the fallback is to go on public assistance and not go to work,” said Lovely, who wants even low-wage workers to earn enough to live on.

On the other hand, she said a couple of businesses have called her to tell her: “‘Don’t touch it, we can’t afford it.’”

Kevin Beckwith, an assistant economics professor at Salem State University, said there’s a debate among economists as to whether there should even be a minimum wage — whether the free market should be the one to dictate wages or the government should prop up the wages of unskilled workers to keep up with inflation. There’s debate about whether raising the minimum wage puts more money in low-wage earners’ pockets at the expense of companies pulling back on hiring, thus creating more unemployment.

Massachusetts already has a higher minimum wage than the federal government’s $7.25 an hour. Beckwith said studies do not seem to show that raising the minimum wage stimulates the economy. Those earning minimum are already cash-strapped, so a modest increase is not going to change their spending habits.

“Traditionally, minimum wage is not a policy tool for stimulative effect,” Beckwith said. The net effect of a minimum wage increase is unknown, though there are studies that show restaurant prices tend to rise.

Mary Gable’s study on a proposed increase in the Bay State’s minimum wage to $10 in August 2012 stated there would be a stimulative effect. Her study was published by the Economic Policy Institute in Washington, D.C., a nonprofit, nonpartisan think tank focused on the needs of low- and middle-income workers.

Gable’s study said the minimum wage hike “would provide a welcome lift to the Massachusetts economy,” boosting the spending power of the state’s lowest-paid workers and leading, in turn, to more job creation. An increase in the minimum wage shifts profits from a business, which is less likely to spend the money, to employees who will spend, Gable’s study said.

But Beverly resident Jon Hurst, the president of the Retailers Association of Massachusetts, says his organization opposes a minimum-wage hike for several reasons.

Massachusetts retailers are competing against those in New Hampshire, which has no sales tax and the federal minimum wage of $7.25 an hour, Hurst said. Massachusetts, by contrast, has the seventh-highest minimum wage in the nation, he said.

“No one, no state is in the ballpark of what we are talking about here,” Hurst said of the proposed $11-an-hour rate.

He also predicts it would result in fewer summer jobs for teenagers — something that is already a problem. Hurst said there are 50 percent fewer jobs for young people this summer than there were in 1999.

“We need to ask ourselves what is going on here,” he said. “We believe we have priced teenagers out of jobs.”

Hurst favors a lower wage rate for teens, which could make it more attractive for business owners to hire them, while assuring that young people can get on-the-job experience.

In Swampscott, Carlo Bacci said a wage hike might make workers feel better — “psychologically, it’s good,” he said.

But he thinks it’s “not going to impact anyone financially,” at least, not enough to lift anyone out of poverty.