An increase in the minimum wage could put financial pressure on many small businesses, but it may also give low-wage workers more buying power and put money back into the local economy.
Voters are being asked to phase in an increase to the minimum wage from $8.31 to $12 an hour by 2020. The minimum wage for tipped workers would rise from $5.29 to $8.98 during those years.
It might be sustainable in Denver, but many small businesses make only a 5 to 6 percent profit margin, and these increases could be tough, if not impossible, for some employers to absorb, and it could have a ripple effect on local economies, said Bethany McManus, a Durango-based bookkeeping consultant.
“Towns we love, that make up the character of this state, are economically isolated. I don’t know many that can withstand that kind of shock,” she said.
After running numbers, she found the almost 70 percent increase for the tipped minimum wages could be disastrous for some small bars and restaurants in town, she said.
All the changes voters are considering, including local property tax measures and a constitutional amendment that would create a single-payer health care system, in addition to the minimum wage increase could compound the effect and hurt employers that might need to cut costs or raise prices, local businesses owners say.
“We’ve got a perfect tax storm,” said Jeff Murray, owner of Durango Harley-Davidson.
Proponents of the law argue that minimum wage increases can help businesses save money by reducing turnover and increase local economic activity by giving employees more money to spend on the essentials, such as food, gas and groceries.
“It really is one of the best ways to get money churning in the economy,” said Sarah Wilhelm, an economic consultant who supports the increase.
McManus and other business owners agree the law is well-intentioned. But it can’t have the intended effect if it is putting employers out of business or causes layoffs, they argue.
Some local business owners also don’t see minimum wage as a permanent income. Rather, they see it as a floor for those entering the workforce, such as teenagers.
Employees will get raises if they excel, said Ted Hermesman III, a general partner in family company that owns apartments, two hotels and several furniture stores.
“If you’re good at what you do, your paycheck will change,” he said.
To absorb the minimum wage increases and other new tax measures, if approved, businesses could be forced to raise their prices to unrealistic levels, McManus said. For example, a beer would go up to $8 or $9, she said.
Proponents counter with studies that found price increases to absorb the minimum wage hikes have been moderate and mostly in the restaurant sector.
San Francisco’s restaurants saw a 2.8 percent increase in prices after a 26 percent increase in the minimum wage, a report by the University of California Berkeley showed.
Those who benefited from the increases tended to be adults, and disproportionately women and people of color, the study found.
Ore House co-owner Ryan Lowe sees a need for reform in the restaurant sector to help alleviate the earning disparities between service staff and kitchen staff.
In some cases, trained culinary school graduates have left the kitchen to be servers because the wages are higher, he said.
In fine-dining establishments, servers can make $25 to $35 an hour with tips.
“The industry has it set up so that 20 percent of sales go into service staff pockets,” Lowe said. This can include hostesses and busers.
Most restaurants can’t replicate those wages for their kitchen staff.
At the Ore Horse, non-tipped staff make more than $12 an hour because the owners want to have long-term employees who can afford to live in town, he said.
Lowe noted that tipping gives customers power, but it may not translate into accountability, because it is unlikely servers would tell their managers they received a low tip.
“You are creating little mini human resources centers at every table at restaurants. Why should guests of our business be our staff’s managers?” he asked.
Managers can easily see what servers receive on average, but it is unlikely managers would review every tip.
The Ore House has considered doing away with tipping, but it is culturally ingrained and it would be uphill battle.
Instead, Lowe would like to see a model implemented across the industry that eliminates conflicting federal and state laws.