Feeling the pain of a $12.25 minimum wage
With cities such as Seattle phasing in higher minimum wages, one city has already had a taste of a $12.25 hour baseline rate, and the experience hasn't been all that painless.
After voter approval, Oakland, California, a neighbor to San Francisco, boosted its minimum wage by more than one-third to $12.25 an hour on March 1. With one month of higher wages under their belts, 223 businesses provided feedback on their experiences to the Employment Policies Institute, a fiscally conservative think tank.
The experiences haven't been entirely positive as more than one-quarter of respondents said they're somewhat or very likely to shut down as a response to the new wage law. Almost half of businesses have increased prices to cope, while another one-third said they've reduced employee hours or their hours of operation to meet the higher costs.
The study could serve as a barometer for other cities that are considering boosting the minimum wage, the EPI said.
"The effect is going to be on the employees," said Muriel Sterling, the owner of a small Oakland-based child care business, on a conference call to discuss the study. "People are [letting] employees go and increasing the duties of the employees present." She added, "It's a bad situation."
To be sure, 70 percent of businesses that responded were small employers with fewer than 15 employees, and those smaller businesses may be less capable of absorbing higher labor costs than larger corporations.
The Service Employees International Union's (SEIU) Local 1021 disagreed with EPI's findings, and sent this statement to CBS MoneyWatch: "This study was funded by corporations with the goal of mischaracterizing the minimum wage. Fortunately, the American people won't be fooled and will continue to enthusiastically support higher minimum wages and the fight for $15."
Some Oakland restaurants have boosted prices by as much as 20 percent as a result, The San Francisco Chronicle reported last month. Others have added a mandatory service charge to help cover the higher costs. That's causing some restaurant owners to worry that they'll lose customers to competing restaurants in other towns.
However, minimum wage hikes remain popular with voters and lawmakers. Three-quarters of Americans support an increase in the federal minimum wage to $12.50 by 2020. In January, 21 states raised their minimum wages, benefiting more than 3.1 million workers.
Some opponents of a higher baseline wage have argued that businesses would cut jobs, although research from the Congressional Budget Office projects that a national $10.10 minimum wage, which President Barack Obama has proposed, would lead to only a slight decrease in jobs. The benefit would be higher earnings for 16.5 million workers, while about 1 million workers would rise above poverty level.
Still, despite the pain of paying employees higher wages, most businesses in the EPI study said they're staying put in Oakland. About 68 percent said they'll remain, 14 percent are undecided and 17 percent said they'd move their current or future operations outside of the city.
Editor's note: This story has been updated to include a statement by SEIU 1021.