Higher minimum wage could have negative impacts
The state minimum wage increases approved by the 2016 Oregon Legislature could actually reduce the earnings of the lowest wage workers, if the experience in Seattle is any guide.
However, employers face many more challenges than just minimum wage requirements, how many people to hire and what to pay them.
Those were two recurring themes from a panel discussion on Oregon's minimum wage at the Portland Business Alliance's breakfast forum held on Sept. 20. The panelists, which included a public policy professor and two small business owners, were also able to answer questions about a wide range of employment issues from the roomful of business leaders at the downtown Sentinel Hotel.
Univeristy of Washington professor Jacob Vigdor led a study of the Seattle law that will eventually raise the minimum wage there to $15 an hour for large employers. Released in June, it found there was not much impact when the first of the phased increases took effect. But things changed after the second increase to $13 an hour.
"In Seattle, pay for low-wage workers went up 3 percent, but hours worked went down 9 percent, reducing their wages $125 a month," Vigdor said of the results of the study, which was required by the law that passed in June 2014.
A similar study released a week earlier found the second increase had no effect on employment. But Vigdor said it only concerned the restaurant industry, not low wage workers in all sectors of the economy, like the University of Washington study did.
"We didn't find any change in overall employment in the restaurant industry either, but we did in the earnings of low wage workers," said Vigdor.
The 2016 Oregon law raises the states minimum wage to $14.75 in Portland, $13.50 in mid-size cities and $12.50 in rural areas by 2022. Charlene Wesler, the owner of Gigi's Cafe in Southwest Portland, was thinking about how to comply with the second increase to $11.25 in July 2017 when something else took priority — a new federal policy preventing her from pooling the tips left at customer tables and dividing them up among all her 14 employees. Under the new policy, only the servers could keep the tips, reducing the money paid to other employees, like the kitchen staff.
"So, I decided to go tipless. Instead of allowing tips, we now charge a 20 percent surcharge on all bills that is divided up among the employees," she said.
According to Wesler, the change essentially created a profit sharing plan for her employees, changing the way they think about their jobs. They are working harder to increase profits and are constantly thinking about how to reduce costs without sacrificing customer service.
"Now when a dish breaks, they cringe too," Wesler said to knowing laughs from the crowd.
Wesler said the change has also reduced turnover since employees see opportunities for making more money.
"When I first opened my restaurant, a lot of employees told me they were just saving up enough money to go to Europe. I met so many people going to Europe. I think, how can that be? I've never been to Europe," said Wesler, who started her business in 2010 as a food cart specializing in waffles while attending Portland State University. Now, after moving into a restaurant space the Hillsdale Shopping Center to serve breakfast and lunch a few years ago, Gigi's will open for dinners in several weeks.
Janelle Bynum brought two perspectives to the discussion. She owns four McDonald's franchises in East Portland, Happy Valley, Milwaukie and Oregon City. The mother of four is also a first-term state representative from District 51, which includes parts of East Multnomah and North Clackamas counties.
"New requirements may seem to cause problems, but there are good reasons for many of them," said Bynum, citing the paid sick leave requirement approved by the 2017 Oregon Legislature as long overdue.
Although Bynum is being required to raise some wages at her franchises, she says a bigger problem is finding enough qualified workers to staff them. As living costs rise in the region, fewer and fewer local residents can make ends meet with entry level jobs, she said.
"We used to hire from the neighborhoods and now we can't. People can't afford to live in Portland anymore," said Bynum.
Vigdor said his research has led him to conclude someone should publish a handbook for employers on how they can pay the higher wages that are coming.
"I've heard enough stories to know that managers are doing more work and customers are being expected to do some of the work, too," he said.
But Vigdor also cautioned that no one should expect higher minimum wages to solve all of society's problems.
"A free market leads to efficient solutions, but not necessarily equitable ones," he said.
The panel was moderated by Kerry Tymchuk, executive director of the Oregon Historical Society. He told the crowd that in 1913, Oregon became the first state in the country to pass a minimum wage law. It only applied to women and minors, and required them to be paid a weekly wage of not less than $8.64 a week. At the time, many of them were being paid as little as $3 a week. Businesses appealed the law to the U.S. Supreme Court, arguing states do not have the authority to set minimum wages. They lost and the U.S. Congress passed the first federal minimum wage law in 1938.