The minimum wage increase in the nation’s capital to $15 an hour is going to clobber small businesses that don’t take in nearly $2 million a year, a Washington, D.C., business owner told The Daily Signal.
Earlier this month, the D.C. Council unanimously passed a measure that will hike the minimum wage in the city to $15 an hour by 2020. On Monday, Mayor Muriel E. Bowser signed the bill into law.
D.C. Council Chairman Phil Mendelson, a Democrat, said in a statement emailed to The Daily Signal:
The District can be an expensive place to live and therefore the concern about the minimum wage is more acute than would be the case is other areas of the country. I expect that the District will not be alone in the Washington metropolitan region, as similar legislation is pending in populous Montgomery County, Maryland.
The District currently has a minimum wage of $10.50 an hour that is scheduled to climb to $11.50 an hour on July 1. In 2014, the city’s minimum wage was $8.25 an hour.
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Carolina Story, co-owner of Straw Stick & Brick Delicatessen in northwest Washington, told The Daily Signal that she is “in shock” about the minimum wage hike passed June 7 by the council.
“It puts a big stop on little startups like ours,” Story, whose business opened four and half years ago, said.
Story wrote June 8 on her personal Facebook page:
This means that a small business like mine—that needs to fill at least 11 entry level positions would have to pay those employees around $31,000 each per year which would amount to approximately $363,000 per year. Of course we would still need to fill at least [three] management positions which would obviously demand more than minimum wage—say maybe $40,000 per year on the low end (these positions deserve more pay but because of the entry level positions I am forced to be conservative).
Story added in the post:
That means that our yearly labor cost might rise to $483,000 in 2020. Business owners in my situation would need to make $1,932,000.00 per year in order to have a healthy business, pay ourselves a living wage, and cover fixed and variable costs.
Smoked sausages and bacon are sold at the Straw Stick & Brick Delicatessen (Photo: Facebook/Straw Stick & Brick Delicatessen)
“All I know is that when I was working on my business plan, I knew what the cost was and I did not anticipate it growing from that to this within such a short period of time,” Story told The Daily Signal. “It completely changes the business plan.”
Bowser said in a recent statement that the bill, the Fair Shot Minimum Wage Amendment Act of 2016, “will put more money in the pockets of working families, and put more people on the pathway to the middle class.”
Small businesses, Story wrote on Facebook, “will either close, hike up their prices in the hopes that the consumer understands, or consolidate positions and eliminate jobs. D.C. I love you—but boy oh boy are you making a mistake!”
The minimum wage hike will force her to change her deli in some way, Story said.
“I can’t really do anything about it. All I can do as a business owner is work hard to figure out how to adjust,” she told The Daily Signal.
Straw Stick & Brick enjoys a good reputation: This year, Washington City Paper deemed its muffaletta the “Best Sandwich” in the District, and Washingtonian magazine named its ham and cheese sandwich the best in Washington.
“You have your small business owners who typically tend to work their butts off trying to be able to make their business work and grow it,” Story said. “But the reason I don’t take a paycheck is because I’m reinvesting in this business to be able to grow it a little faster without taking out loans” and putting the business through a financial burden.
Story said the Straw Stick & Brick Delicatessen, staffing less than a dozen employees, hires college and high school students to fill some positions, and her current employees all make above minimum wage.
“I have people who we hire to slice meat,” Story said. “They don’t want to do that forever. They basically come in here so they can go on to their next step in life.”
An assortment of meats, snacks, candies, and gifts at the Straw Stick & Brick Delicatessen. (Photo: Facebook/ Straw Stick & Brick Delicatessen)
Jed Graham, an economic policy writer at Investor’s Business Daily, wrote six months ago that fewer jobs in the leisure and hospitality sector in the District provided “plenty of reason to be wary of the big minimum wage hikes in the pipeline.”
In the District, instead of adding about 2,000 leisure and hospitality jobs per year, as the city has in recent years, the nation’s capital lost about 700 jobs in this sector, according to Investor’s Business Daily.
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“This hike will price many workers out of the D.C. labor market,” James Sherk, a research fellow in labor economics at The Heritage Foundation told The Daily Signal, adding:
Any employee who cannot produce $15 an hour in value for their employers cannot legally work in D.C. Fortunately, these workers will still have the option of working in nearby Maryland or Virginia. The primary effect of the law will probably be pushing employers and jobs out of D.C. and into the D.C.’s Virginia and Maryland suburbs.
Nearby cities in Virginia and Maryland have minimum wages of $7.25 and $8.25, respectively, Mark Perry, an American Enterprise Institute scholar and professor of economics and finance at the University of Michigan’s Flint campus, noted in a blog post earlier this year.
Perry added of the District: “At the same time that suburban restaurants last year increased staffing levels by nearly 5,000 new positions, employment at the District’s restaurants contracted by more than 200 jobs.”
Perry told The Daily Signal in an email that minimum wage hikes already are having a negative impact on jobs and businesses in the District.
“This is a very risky experiment; the minimum wage has never been close to being this high,” he said.
A May report from the Employment Policies Institute says D.C. businesses responded that they likely would cut staffing levels, reduce employee hours or their business hours, and modify future hiring practices—selecting more skilled or experienced employees whose qualifications are commensurate with the higher wage requirement.
“It puts a big stop on little startups like ours.” — Carolina Story
“One in five businesses would strongly consider moving across the river to Arlington, Va., where the minimum wage of $7.25 is less than half the rate proposed in D.C.,” the report says.
Forty-eight percent of the 100 survey respondents already had reduced staffing levels or employee hours, the report notes.
Perry says that small businesses, such as restaurants, won’t be able to absorb all of the increases in operating costs.
“So I predict this will be an economic disaster for D.C., and will especially hurt the most vulnerable workers (unskilled, minorities, etc.) and small businesses,” Perry wrote in an email to The Daily Signal. He added:
In the end, it’s not about social justice, it’s simply a matter of ‘restaurant math’ or ‘business math,’ and the $15 an hour minimum wage is some really bad math for workers and businesses, so it’s really an ‘economic death wish’ for the District.
Montgomery County, Maryland, which adjoins the District, proposed raising the minimum wage to $15 an hour by 2020. In nearby Baltimore, the city council has also discussed raising the minimum wage to $15 an hour by 2020.