Minimum wage boost would damage economy

Original Article:

  • Author: Michael Saltsman

  • Publication Date: March 2017

  • Newspaper: Quad City Times

  • Topics: Minimum Wage

Gov. Terry Branstad is half-right on the minimum wage.

Last month, the governor threw his support behind “a modest increase” in the Iowa’s minimum wage as well as a measure that would restrict municipalities from increasing their minimum wage above the state level. He’s wrong on the first point but right on the second.

A review of the best minimum wage research, published by the Federal Reserve Bank of San Francisco, confirmed that past “modest” minimum wage increases have had a major impact on job opportunities for young and less-skilled jobseekers. Researchers at Trinity and Miami University replicated the methodology of the nonpartisan Congressional Budget Office and found that Iowa would lose over 5,000 jobs if a $10.10 minimum wage was implemented statewide. According to the most recent Census Bureau data, the Davenport Metro Area has a youth unemployment rate averaging over 17 percent.

Iowans don’t have to look far to see consequences from minimum wage increases. Johnson County, which increased its minimum wage by 39 percent between November 1, 2015 and January 1, 2017, is suffering consequences, with employees feeling the impact.

Jon Sewell, the owner of Iowa City restaurant D.P. Dough, said he has had to cut back staff hours because he couldn’t absorb the payroll increase of the minimum wage hike. Sewell stated, “We are using less hours so there are less people getting paid than we used to have because we weren’t able to absorb all that increase in payroll.” Business operators who are making razor thin profit margins have little flexibility when government dictated labor costs come in double digit increases.

The Orange Leaf, a frozen yogurt shop in North Liberty, closed its doors entirely, telling one local news station that it “couldn’t keep up with Johnson County’s minimum wage,” and warned that they wouldn’t be the only ones to close. That includes another North Liberty business, the Popcorn Shoppe, whose owner worries he’ll have to close his doors because of rising labor costs combined with a tough business environment.

Childcare centers, which run on very low profit margins, have also been affected by the wage hike. The director of the Mary Jo Small Child Care Center said the wage hike had a “huge impact” on her center, which was forced to raise prices for care by $100 a month per child to avoid going out of business.

Similar consequences are playing out across the country in other locales experimenting with starter wage increases. In California, where the wage increased to $10.50 on New Year’s Day and many localities have gone higher, dozens of businesses have closed their doors or plan to leave the state. Washington State, which also fashions itself a “leader” on the minimum wage, has seen the closure of numerous cafes and other businesses. And in New York, numerous restaurants have gone out of business, laid off employees, or reduced hours to compensate for increased labor costs associated with recent starter wage increases.

To prevent similar consequences in Iowa – like those seen in Johnson County and around the country – the Iowa Legislature should take a pass on the governor’s not-so-modest wage increase proposal. Instead, it should follow in the footsteps of the Ohio legislature, which (with bipartisan backing from prominent Cleveland Democrats) passed a law establishing one minimum wage at the state level.

Iowa citizens are just beginning to understand the consequences of lacking such a law. In California, labor groups and activist city councils have created a mind-boggling patchwork of local wage laws; in the Bay Area alone, there are more than a dozen municipalities with their own mandated wage laws, and the sky’s the limit on how high they can go.

In order to keep Iowa’s entry-level career pathways open, Gov. Branstad should keep the starting wage at a reasonable level, and ensure that municipalities across the state can follow one wage standard.