Potential minimum wage increases could ‘kill’ Utah small businesses

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Phil Stevenson prepares his restaurant K’s Kitchen to open for the night shift. Stevenson is worried a minimum wage increase will force him to fire employees, raise prices and reduce hours further than he already has due to the pandemic. (Cassidy Wixom)

K’s Japanese Kitchen owner Phil Stevenson said a minimum wage increase would kill his business.

Stevenson and his wife run their restaurant located on Provo Center Street. He is worried about what might occur if lawmakers increase the minimum wage.

“I have only very few options,” he said. Reducing hours, cutting staff and raising prices are the only ways he would be able to keep his business afloat.

“With Democrats in power, I think they’re going to pass something. It scares me to death,” he said.

President Joe Biden proposed legislation to raise the federal minimum wage to $15 per hour, but the Senate parliamentarian ruled on Feb. 25 that the proposal cannot be part of a COVID-19 relief bill. It remains to be seen if a stand-alone bill to increase the minimum wage will be drafted.

Sens. Tom Cotton, R-Ark., and Mitt Romney, R-Utah, are proposing to gradually increase the federal minimum wage to $10 per hour by 2025.

Stevenson said a national minimum wage “is a real dumb idea” because the cost of living is different in every city or state.

Although he opposes the minimum wage in general, Stevenson said if the minimum wage has to be a thing, it should be “locally governed, locally decided.”

Utah Governor’s Office of Economic Development Executive Director Dan Hemmert said small businesses “bear the brunt of minimum wage increases more than anyone else.”

David Peterson owns the Soap Factory, a small business in Provo where customers create their own unique soaps. Already a low-margin business, Peterson said he makes almost no profit from the Soap Factory.

Peterson is worried that for his business to survive, he would have to raise prices significantly which could “alienate” lower-income customers, like high school and college students who he said are his most supportive customers.

Reducing hours would mean his business would have to close on weekdays which Peterson said could deter youth groups, treatment center patients and tourists from attending.

A minimum wage of $15 per hour would force the Soap Factory to become a “zero employee business,” he said. Eventually, Peterson said people will go to a “fully-automated” Soap Factory with no employees on site, “and I’m guessing we won’t be the only place that happens.”

Hemmert said Utah would eventually adapt to a minimum wage increase, but most likely it would be met with negative responses and small businesses in particular would struggle.

While it is hard to know what will actually happen if the minimum wage is increased, Hemmert said such an increase can influence the rate of inflation.

When the minimum wage is increased, the cost structure for businesses goes up to offset rising business prices, Hemmert said. When this occurs across businesses and industries, prices inflate and cancel the value of the increasing minimum wage.

“It doesn’t really accomplish what you are trying to accomplish because the offsetting inflationary pressure from that increase in the minimum wage and increase in cost and business negates itself,” he said.

Hemmert said because the cost of living is so different in each state, he thinks states should make decisions on the minimum wage rather than letting the federal government dictate it.

“We don’t need the federal government weighing in on this,” he said. “We don’t need a one size fits all approach.”

The current federal minimum wage and the minimum wage in Utah is $7.25. Both federally and locally there are calls for raising the minimum wage and various legislative proposals to do so. (Cassidy Wixom)

In the Utah Legislature, Rep. Clare Collard, D-Magna, and Rep. Ashlee Matthews, D-West Jordan, both have bills in the House that would raise Utah’s minimum wage.

Collard’s bill would “incrementally” increase Utah’s minimum wage over the next five years bringing it to $15 by 2026. It would also raise tip workers’ minimum wage to $5.

“We haven’t raised the minimum wage since 2008. We are way behind,” Collard said. Utah’s minimum wage is the same as the current federal minimum wage, $7.25 per hour.

She said there are around 19,000 employees making minimum wage in Utah and many are trying to support their families on it.

“These incremental raises would go a long way in eradicating generational poverty and would raise a lot of people out of poverty,” she said. Raised wages, she said, also lessen the need for a social safety net such as food stamps.

According to Collard, many states and municipalities have raised the minimum wage and now their communities are thriving. She said when people are paid more, they are spending more and that spending then goes back into the community.

Collard’s bill was tabled on Feb. 25 in the House because of fears it would hurt the economy and small businesses.

Matthews’ bill proposes a gradual minimum wage increase to $11.75 by July 2028 and then yearly adjustments for inflation would follow. Her bill categorizes some areas of the state as a “nonurban county” or “urban growth boundary” where the required minimum wage would be slightly less to account for cost of living differences within the state.

Many small businesses are struggling to stay open because of the COVID-19 pandemic, and Stevenson said adding minimum wage increases on top of already-struggling businesses will be chaos.

“You’ve already got people who don’t have jobs or need jobs and now you’re gonna cut hours or get them fired?” he said. “If they do this now and kick us right in the gut again, it’s going to be very difficult.”

Hemmert said he thinks now is not the time to be increasing the minimum wage.

“You have people who are barely hanging on right now or are trying to work through a recovery in their own businesses, and if you slap a minimum wage increase on them, what it does is you just raised the cost structure significantly,” he said. “You just punched them in the gut again.”

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