Proposed Minimum Wage Increase: Dollars And No Sense?

By Susan Bush
12:00AM / Friday, July 07, 2006

Nicole Young said that a proposal to increase the state's minimum wage would benefit entry-level workers but might have a negative psychological effect on other employees.

North Adams - With state Senate approval already in place and a reported expectation that the state House of Representatives will act in the affirmative as well, a minimum wage pay hike is likely set to kick in beginning Jan. 1 2007.

Two-Phase Increase

Under the plan, the first phase of the action will hike the minimum hourly employee wage from a current $6.75 per hour to $7.50 per hour when the year turns. And another $.50 per hour raise will put the minimum wage at $8 per hour beginning Jan. 1 2008.

The last state minimum wage hikes came during the turn of the century. During 1999, state legislators approved raising the lowest wage an employer can offer an employee from $5.25 per hour to $6 per hour on Jan. 1, 2000, and hiked it again to its' current rate in 2001.

Why Wait 'Til '08?

Marie Harpin, a city councilor and the area director of the Berkshire Community Action's Northern Berkshire 85 Main St. office, said that a raise is welcome and can't kick in soon enough.

"It's an excellent idea and I hope it passes," she said during a brief July 7 interview. "I'd like to see it go up [to $8 per hour] before 2008."

Harpin noted that numerous families defined as "working poor" are in dire financial straits. Locked out of many state and federal assistance programs because of income ineligibilities that may be as little as $50 to $100, these families are struggling to pay their utility bills, meet child care costs, vehicle fuel costs, and other basic expenses.

"People are getting deeper and deeper into debt and some aren't going to make it [at current minimum wage levels]," she said."These are working people who can't keep up."

Harpin said that her observations are that vehicle fuel is priced at about $.06 more per gallon in the Northern Berkshires than in the Pittsfield area. That difference makes things even tougher for Northern Berkshire families, she said.

"I would like to know why the prices in North County are higher," she said."People are paying an unbelievable price just to get to work."

A $lippery $lope

City resident Nicole Young is 23 years old and works at a retail shop at a middle-management level. When Young first entered the workforce, the state's minimum wage was less than $6, she said during a July 7 mid-morning interview. Hiking the minimum wage to $8 will benefit a new group of entry level workers, she said.

"So for that, I think it's great."

But her employer is unlikely to adjust the wages of higher paid workers when the raise is implemented, and that does deliver a negative psychological wallop to those employees, she said.

For example, a worker currently earning $9 per hour is making $2.25 per hour above the minimum wage. If that worker has received no raise or a minimal raise and an $8 per hour wage kicks in, that worker will be much closer to or at "minimum wage worker" status, she noted.

Minimum wage jobs are considered entry level or unskilled positions and people with experience deserve to be paid at levels that noticeably exceed a minimum wage, she said.

"And me, being in management, I don't want to be associated with entry level positions or wages, especially with six years experience," she said.

Business Impacts

Massachusetts Food Association President Christopher Flynn questioned the wisdom of a minimum wage increase during an era of increasing utility costs, vehicle fuel and product delivery costs, and health insurance benefit expenses, all of which are pummeling businesses.

Another issue is the looming specter of mandatory state health insurance coverage for all state residents, set to kick in in July 2007. Specifics about how health plans will be offered and how much they will cost consumers and commercial enterprises have yet to be revealed, he noted.

The MFA is a non-profit trade association for the state's food distribution industry. Membership includes retail markets, food brokers, manufacturers and wholesalers. The MFA is the lead entity speaking for the state's food industry, according to information posted on the MFA www.mafood.com Internet web site. The Big Y and Stop and Shop firms are listed as MFA members. Both companies operate supermarkets in the Berkshires.

The increase affects certain industries more than others, and the supermarket industry is likely to feel significant impacts, he said.

Many supermarkets and convenience-type stores are open seven days a week and during holidays; Flynn noted that the state's "blue laws" mean that employees who work on a Sunday or a holiday must be paid time and a half as an hourly wage. An $8 minimum hourly wage generates a $12 per hour time-and-a-half wage, "which is a lot for stocking shelves," he said.

"The minimum wage is just that, a minimum wage," he said. "It's an entry level wage. It's not a living wage."

Flynn said that in many cases, a person enters the workforce at minimum wage and is awarded a pay raise within a few months of employment.

"People don't stay long at minimum wage," he said.

What $8.50 Per Hour Buys In 2006

A married, "20-something" city resident employed at an area convenience store and currently earning $8.50 per hour for about 40 hours of weekly work agreed to disclose private financial details under conditions of anonymity.

"Simon" is a worker with experience, a work history, and no employment-related limitations or restrictions .

"I've been looking for another job," he said. "But around here, a lot of jobs don't pay much more than $10 or $11 an hour anyway. All the expenses go up, up, up, and everybody's pay stays the same. You try to work hard and get ahead and all you do is work hard and get buried."

"Simon" does not claim any dependents on his W-4 form. After taxes, he brings home a $267 weekly paycheck. Several months ago, "Simon's" wife "Mavis" lost her job and just recently returned to an almost full-time work schedule. For about five months, "Simon's" paycheck was the household's revenue source.

The rent on the couple's apartment is $650 per month with the heat and electricity included in the rent payment. "Simon" performs certain maintenance tasks on the premises and the property manager deducts $50 per month from the rent in exchange for the work. "Simon" and "Mavis" do not have health insurance benefits and must pay for their medicines and healthcare costs directly out of pocket.

The couple do not work in the city and must commute to their jobs. "Simon" said that driving back and forth to his job costs about $50 per week. His work schedule is a "split shift," meaning that he drives to work and back to his home twice a day. "Mavis" has a longer commute and must pay more in vehicle fuel costs.

"Simon" and "Mavis" each are responsible for a vehicle payment and vehicle insurance bills. They also pay for cellular telephone service - they eliminated a house telephone to save money- and they do pay for cable television. Grocery costs, including items such as soap, shampoo, laundry detergent, and other sundries, cost about $100 per week.

"And we are part of a family," "Simon" said. "There are birthdays, holidays, and the unexpected things that come up. There's never a chance to save money, and I've tried. So if I'm having this hard of a time on $8.50 per hour now, what good will $8 do for someone else in 2008?"

According to Flynn, an increased minimum wage is something that sounds like a better idea than it may actually prove to be.

It's a likely ripple effect of an increased minimum wage that may create problems for employers, Flynn said. Service industry and food industry employers are likely to face the most challenges due to an increased minimum wage.

"It's not so much what it does to the floor, it's what it does to the ceiling," he said, and noted that when the minimum wage is edged upward, most company employees expect a bump up the wage ladder. And if the increase becomes law, in 2008, a company that pledges a raise after a 30-, 60-, or 90-day period of initial minimum wage employment is committed to a raise on $8 per hour as opposed to $6.75 per hour. Those raises may be decreased, or may not come at all.

Flynn described the supermarket industry as a "penny industry."

Money is made at a rate of about one cent to one and a half cents on every dollar of groceries that is sold, he said. While any specific impacts of a minimum raise increase remain to be seen, Flynn said that some companies may elect to reconfigure benefits packages or re-allocate resources as a way to meet the added payroll costs. Other possibilities include staff reductions or a decreased reliance on certain populations as employees.

Massachusetts is one of the very few states that is losing population and an increased minimum wage will do little to change that, Flynn said.

"This will not stimulate growth," he said.

But the current proposal is an improvement over other plans that were put forth, he said, and noted that one minimum wage increase package called for the wage to be raised to $8.25 per hour in two installments of $.75. There was talk of implementing the first phase of the increase in October, he said.

"It certainly isn't as bad as it was," he said. "At least the legislature saw the need not to do that [increase to $8.25 per hour] and they also put it off from October. At least you have some time to plan."

Susan Bush may be reached via e-mail at suebush@iberkshires.com or at 802-823-9367.