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Small Business Owner: An Increased Minimum Wage Hurts Everyone
Michigan Capitol Confidential ^ | 5/10/2014 | Kevin Kelly

Posted on 05/15/2014 12:07:36 PM PDT by MichCapCon

The ballot proposal that would raise Michigan's minimum wage to $10.10 per hour has raised a number of concerns for small business owners in Michigan.

This would increase the wage by 36 percent for non-tipped employees and 280 percent for tipped employees. The magnitude of this increase will have a dramatic impact on the restaurant industry.

I would venture to say few industries, if any, in Michigan are capable of absorbing this percentage increase in costs when labor already represents 30 to 35 percent of every dollar spent by the consumer.

Research indicates that today 1 in 4 restaurants fail in the first year and 60 percent within three years. That failure rate likely will increase significantly with this proposal. Furthermore, future investments in this industry will be curtailed as investors/business owners will find more profitable ways to spend their time and capital.

The coalition behind this proposal suggests that this increase be passed on to the consumer in terms of higher prices, and in part be absorbed by the business owner via lower margins. What they fail to realize is that the return on investment for the business owners in this industry is only about 3 percent. Consequently, further reduction in the margins will make this industry even less attractive for investors/business owners.

And passing this major increase in cost on to the consumer in terms of higher prices is just not practical. The cost increase will be compounded as the restaurant suppliers will also increase their prices to the restaurant. This would necessitate an even higher cost pass through to the consumer.

At a time when the Michigan economy is still struggling and consumers are by necessity very price conscious, I doubt most businesses will be able to pass on a significant price increase and survive.

A recent survey in Michigan found that 75 percent of consumers believe that small businesses will have the hardest time adjusting to price increases resulting from this minimum wage increase proposal. They stated that if approved, they will tip less than they do today. That's bad for local restaurants and servers.

Restaurant employees initially may applaud this wage increase, but I believe the reality will be either no change or even a reduction in their disposable income. The great majority of these employees today earn $15 to $20 per hour — the mandated increase to $10.10 will mean they receive fewer tips while paying higher FICA, state, and federal taxes on their new minimum wage. Restaurants also will be more likely to shift away from having tipped employees.

If approved as proposed, a greater number of businesses will fail and those that survive will need to change their business model. The cost structure will have to be greatly reduced, which generally means fewer employees. All in all nobody wins.

As in all business, cost increases are a way of life and a reasonable increase to the minimum wage could be managed by most businesses. However, a lower tipped minimum wage is essential if the restaurant industry is going to prosper and continue to provide employment opportunities for these entry-level employees.

The current proposal eliminates the tipped exception and increases Michigan's minimum wage to the highest in the nation. That will harm business owners, employees and consumers.

Kevin Kelly is the owner of Blackthorn Pub in Holly.

TOPICS: Government
KEYWORDS: minimumwage

1 posted on 05/15/2014 12:07:36 PM PDT by MichCapCon
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To: MichCapCon
quote “And passing this major increase in cost on to the consumer in terms of higher prices is just not practical.”

it will be easier than you think to pass on because everyone will be raising their prices. It's competition that keeps prices down, but since the hike in the minimum wage will hit everyone simultaneously, everyone will raise their prices at the same time and no one will lose business and everyone will make the same margin as they did before. This is the reason why raising the minimum wage doesn't solve the issue, because all it really does it make everything cost more (causes inflation) which makes the extra money people are now earning, buy no more than it did before they raised it.

2 posted on 05/15/2014 12:17:30 PM PDT by TexasFreeper2009 (Obama lied .. the economy died.)
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To: MichCapCon


3 posted on 05/15/2014 12:22:55 PM PDT by massgopguy (I owe everything to George Bailey)
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To: MichCapCon

I doubt minimum wage workers have looked at the big picture — wages go up, entitlements go down. Less (or no)food stamps, medicaid, housing assistance, free school lunch, etc.

They might be better off in a minimum wage job with all the goodies still available.

Just thinkin’ out loud.

4 posted on 05/15/2014 12:25:13 PM PDT by Cloverfarm
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To: TexasFreeper2009

This is the hundred minimum wage hike. We need a new reason for not doing it. There has to be a better reason then losing jobs. I remember in the 90’s when small businesses were begging for workers and they still raised the minimum wage then. What is another reason that people can get behind then losing jobs? So far, McDonald’s is still here even after 100’s of minimum wage increases. We need a new strategy.

5 posted on 05/15/2014 12:25:58 PM PDT by napscoordinator (Governor Scott Walker 2016 for the future of the country!)
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To: napscoordinator

I’m guessing it’s because the inflation that comes with it really hasn’t been a problem so far. You will see a tremendous increase in prices if this one is passed. This is a 30% increase in the minimum wage. So, now your meal that you normally pay $10 for is now going to cost $13 to cover the costs...or someone loses a job to make up for the difference.

6 posted on 05/15/2014 1:09:14 PM PDT by woweeitsme
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To: woweeitsme

The left wing is fully aware jobs will be lost at the entry level. Their real reason for a minimum wage increase is to grab more in payroll taxes.

7 posted on 05/15/2014 2:07:31 PM PDT by Liberty Wins ( The average lefty is synapse challenged)
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To: MichCapCon

Wages at fast food businesses will go up, as will wages for the service industry, but business that already have wages higher than minimum wage will lag behind, causing a drop in business across the board, and placing an even harder burden on people who are squeezed about as tight as they can go. The minimum wage increase is pure politics that will slow down growth in the job market, but the people doing it will feel good about it, and get their votes.

8 posted on 05/15/2014 2:12:14 PM PDT by pallis
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To: napscoordinator
There isn't one, this is a battle we will never be able to win, because inflation is just to complicated for the average idiot to understand.

The get more money ... they believe they are richer. They just don't have the mental capacity to understand that if they can't actually buy more with the extra money (because of inflation) that they are not actually earning more money.

That concept is just too hard for most to grasp.

9 posted on 05/15/2014 2:39:57 PM PDT by TexasFreeper2009 (Obama lied .. the economy died.)
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To: Liberty Wins

and if the price of everything goes up, that also is a windfall for local sales taxes receipts.

10 posted on 05/15/2014 2:41:35 PM PDT by TexasFreeper2009 (Obama lied .. the economy died.)
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To: MichCapCon

If MI wants to commit suicide and do this, let them. This is federalism in action.

11 posted on 05/15/2014 3:03:31 PM PDT by Extremely Extreme Extremist (100% pure organic, free-range conservative)
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To: MichCapCon

Increased minimum wages result in gradual increases in prices of all goods and services, from hamburgers to gasoline to watch repair - eventually those receiving the increases are right back where they started in relative economic terms - except one - they will be paying more taxes because they will be making more money (income tax) and buying more expensive goods (sales tax) - no wonder the ‘rats are so intent on being sooo kind to these poor downtrodden workers......

12 posted on 05/15/2014 9:38:23 PM PDT by Intolerant in NJ
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