The momentum toward raising the legal minimum wage is causing fewer Iowa retailers to lose sleep than one might expect.

Iowa is among a minority of U.S. states that have not raised their local legal minimum wages above the federal level of $7.25 per hour. Thirty-one states and the District of Columbia have passed laws stepping up their legal minimum wages now to $7.50 to $9.47, according to a 2015 fact sheet compiled by the Pew Research Center.

Iowa legislative efforts failed earlier this year to raise the state’s minimum wage to $8.75 per hour, as did similar bills in Congress to raise the federal wage. Nevertheless, public support for raising the legal minimum wage has been steadily growing over the past two years, according to a host of opinion polls across the country. 

A change in minimum wage would have the greatest impact on the retail industry, particularly on restaurant and food service businesses, which account for more than half of all minimum wage jobs in the country, said Iowa State University labor economist Peter Orazem. So it’s perhaps a little surprising that a poll last summer by Small Business Majority found that 56 percent of small businesses in the retail and restaurant industry favor raising the minimum wage to $12 an hour by 2020. 

Retailers readying
“I don’t think there’s a doubt in (retailers’) minds that they’re going to go to $10 an hour. They’ve already worked it into their cash flow budgets,” said Ron Prescott, a retail specialist for Iowa State University Extension and Outreach.

Jessica Dunker, executive director of the Iowa Restaurant Association, has a similar opinion. You won’t see the restaurant association leading a protest against the Johnson County Board of Supervisors’ September decision to step up the countywide minimum wage to $10.10 by 2017, she said. 

“Quite frankly, most Johnson County restaurants were already paying more than the new minimum,” she said.

Not that most retailers like the idea of raising the minimum wage. 

Debbie Westphal Swander, a Valley Junction businesswoman for decades, is against it.

Historic Valley Junction Foundation, which represents a West Des Moines shopping district of about 150 small businesses, has discussed the issue but hasn’t taken a position, said Jim Miller, the foundation’s executive director. The group has business owners on both sides of the issue. 

Swander says most retailers are concerned that their employees have a decent standard of living, but she fears that increasing the minimum wage would drive up all hourly wage levels.

“That’s harder on a smaller business because you don’t have the range of opportunities to expand and adjust to that,” she said.

The answer to improving workers’ standard of living is to grow the economy, she said. “If you want a bigger slice of the pie, get a bigger pie,” she said. 

Of greater concern to many retailers and restaurant owners is the difficulty in finding quality employees. Prescott, who is co-director of the Iowa Retail Institute, which provides assistance to small retailers, illustrates this with the story of two of his friends who own a couple of McDonald’s franchises.

The couple often talk to him about their difficulty hiring good employees. 

“They’re already trying to advertise for $8 and $9 and not really getting a lot of applications. You can go up and down Duff Avenue, and you’ll have 10 stores advertising for help,” said Prescott. Their question to him: “Do you think we’re going to be able to get good people at $10 an hour?”

Said Swander: “There’s a perception there are lots of people who will work for $10- $12 an hour for a full-time position, but there aren’t.”

What’s the fallout for business?

Even if many retailers have accepted the need to pay higher wages, that doesn’t mean there won’t be an economic impact to a higher minimum wage, said Orazem, the labor economist.

The economics rule of thumb is that for every 10 percent increase in the minimum wage, there is a 1 percent reduction in employment across all workers, but disproportionately among teenage and part-time workers, he said.

The last time Iowa increased its minimum wage was in the early 1990s, and Orazem studied the impact. He said raising the minimum wage did not result in layoffs, as many suggested it would. Although the number of jobs did not change, Orazem said, Iowa employers cut the hours employees worked and even cut back on how many hours their stores were open. Some even switched full-time employees to part-time work. 

However, “I think the minimum wage probably isn’t going to change the distribution of full-time to part-time very much,” he said.

He added that there is not solid research that increasing the minimum wage pushes other hourly wages up.

“This is often alleged, but there is precious little evidence,” Orazem said. “Moreover, if you make the least-skilled (workers) more expensive to hire, there is an incentive for firms to increase the hours of the super-minimum group (i.e., the ones just above the minimum wage), and so the increase is more likely in hours than wages.”

Orazem noted that smaller businesses, defined as those with annual sales of $350,000 or less, are exempt from minimum wage laws, “so McDonald’s would be more affected than a small sit-down restaurant,” he said. 

The Iowa Policy Project, a liberal think tank in Iowa City, has pushed for increasing the minimum wage, saying it’s not a living wage. 

Increasing the minimum wage to $10.10 would help about one in 10 Iowans, according to a 2013 report by the Economic Policy Project, a national think tank in Washington D.C.  The Iowa City group notes that increasing wages benefits small businesses because low-income workers are more likely to spend the extra money on necessities, funneling the money back into the communities in which they live. 

Orazem, however, said that raising the minimum wage is not an effective way to fight poverty. A better strategy for that is increasing the Earned Income Tax Credit on individual income tax returns.

Prescott said he thinks that it’s appropriate to raise Iowa’s minimum wage to $10 an hour, citing a study done by his colleague, ISU economist David Swenson. The study tracked the purchasing power of the minimum wage from 1974 to today. To purchase the same amount as it did in 1974, Iowa’s minimum wage would be $9.34 an hour, he said.

“In my opinion, if we (in Iowa) just do the $10, I don’t think we’re going to see a huge impact, nor do I think there will be a huge loss (to businesses),” he said.

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When Iowa led the nation

Iowa had a higher minimum wage than the rest of the nation briefly in the early 1990s, but it was by accident, said Iowa State University economist Peter Orazem. 

State legislators, expecting the federal government to increase the minimum wage,, voted to raise Iowa’s minimum wage to $4.65 per hour, which would have been equal to the proposed federal wage. However, Congress did not hike the federal wage that year, so Orazem said Iowa’s minimum wage was higher than the rest of the nation for three or four years. 

Traditionally, Iowa has just used the federal minimum wage, he said: “It’s relatively recently that states have started to raise their minimum wage above the federal level.”

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Minimum wages around Iowa
Iowa – $7.25
Minnesota – $8.00
Wisconsin – $7.25
Illinois – $8.25
Missouri – $7.65
Kansas – $7.25
Nebraska – $8.00
South Dakota – $8.50

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When Iowa led the nation

Iowa had a higher minimum wage than the rest of the nation briefly in the early 1990s, but it was by accident, said Iowa State University economist Peter Orazem. 

State legislators, expecting the federal government to increase the minimum wage,, voted to raise Iowa’s minimum wage to $4.65 per hour, which would have been equal to the proposed federal wage. However, Congress did not hike the federal wage that year, so Orazem said Iowa’s minimum wage was higher than the rest of the nation for three or four years. 

Traditionally, Iowa has just used the federal minimum wage, he said: “It’s relatively recently that states have started to raise their minimum wage above the federal level.”

Where near-minimum-wage employees work
“Near-minimum-wage earners” are defined as hourly workers who make between the minimum wage in their state and $10.10 an hour.

Industries that employ the most near-minimum-wage workers
Restaurants and other food services – 3,754,000
Grocery Stores – 902,400
Department and discount stores – 650,200
Construction – 633,100
Elementary and secondary schools – 562,900

Most common occupations among near-minimum-wage workers
Cashiers – 1,407,400
Retail sales people – 1,099,300
Cooks – 1,046,400
Waiters and Waitresses – 773,300
Janitors and building cleaners – 725,300

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Business Record readers slightly favor raising minimum wage
Business Record readers are divided about whether Polk County should increase Iowa’s hourly minimum wage of $7.25. Fifty-one percent said yes, while 41 percent said no, in our unscientific online survey this month.

Yes – 50.9%
Maybe – 8.5%
No – 40.6%

Most proponents of higher minimum wage in our survey say it should be $10 to $12 an hour.

33% – $10 an hour
25% – $12 an hour
16% – $15 an hour
26% – voted for other wage levels, ranging from $8 to $14 an hour

FACT:
A Pew Research Center analysis found that the restaurant and food service industry is the single biggest employer of near-minimum wage workers, employing about 18 percent of the total number of workers who are paid hourly wages between $7.25 and $10.10 an hour. (Those statistics do not include tips, so some of those workers may take home more than $10.10 an hour.)

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We Asked: Should the minimum wage in Polk County be raised? 
Currently it is $7.25 per hour and is the same as the federal minimum wage.

Yes: 
“As an employer in the retail sector, I know that roughly 30 percent of retail employees qualify for some form of welfare to make ends meet. That means my tax money is subsidizing my competition’s employees because the minimum wage is not tied to inflation. The minimum wage should be raised, not as an arbitrary punishment to businesses, but to level the playing field between them.” 
— Mike Draper, owner, Raygun

“I have started and run four different businesses, one of which paid workers by the hour. We always paid above the minimum wage, even though we had as many as 120 employees. Raising the minimum would have had no effect on us.” 
— Charles Irvine, founder, Container Recovery Inc.

“… Per a recent MIT study, the living wage for a single adult in Polk County is $10.44. The living wage for a single parent with one child is $21.97. To not increase the minimum wage in light of drastic exponential cost of living increases is simply unethical, irresponsible and borderline abusive.” 
— Anne Thomas, grants manager, Big Brothers Big Sisters of Central Iowa.

“A modest increase over time is important. I would index it so that every five to eight years we don’t have a knock-down, drag-out fight.” 
— Chris Coleman,  president, Better Business Bureau, Des Moines

No:
“Wages should be set by the state for the entire state. By allowing counties or municipalities to set their own rates, surrounding more rural areas will have a more difficult time finding workers for their entry-level jobs.”
 — Scott Turczynski, vice president and owner, Heartland Finishes Inc.

“A higher minimum (starting wage) makes it more difficult for unskilled workers to get into the work world where they can learn skills that make them more valuable to employers. And the more an employer has to pay a worker to do basic tasks, the more incentive that employer has to invest in technology rather than keeping people on staff. Note the increasing use of self-checkout lanes or mechanical product-sampling stations in retail businesses. For a business to stay in business, the input from each employee must bring in more revenue than it costs the employer to keep him or her on staff.” 
— Marcia Martin, owner, Relationship Fundraising LLC

“Wages should be likened to the value the individual brings to the enterprise and influenced by the supply and demand for the skills, knowledge and their ability to contribute to the success of the enterprise, especially when the focus is being consumer-centric.” 
— Lawrence R. Carlstone, partner, Business Legacy LLC

“You cannot increase the minimum wage without increasing the cost of the services that are being provided. No one wins.” 
— Anonymous

Maybe: 
“I believe it is irrelevant. I would like to know how many people in Polk County make minimum wage. The marketplace takes care of itself.” 
— Anonymous

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Restaurant industry has a pay-for-performance, not minimum wage mindset

BY JESSICA DUNKER, PRESIDENT AND CEO | IOWA RESTAURANT ASSOCIATION

Where was your first job? For one in three Iowans, it was in a restaurant. 

We are the industry that trains the state’s and the nation’s workforce. 

There is no better place to learn customer service, teamwork, product quality, supply and demand, work ethic, accuracy, patience, promptness and a slew of other highly translatable job (and life) skills.

Perhaps it’s because we are the industry that gives so many people a first job or a second chance that we are often misunderstood, both as a career choice as well as in wage conversations. 

It’s true the restaurant industry is teeming with entry-level opportunities, but we do not have a minimum wage mindset. We are one of the nation’s most nimble industries, as well as one of the last professions where “pay-for-performance” allows for nearly limitless growth potential. Talented servers can work flexible, part-time schedules and, with tips, earn highly competitive hourly wages.  When menu prices are adjusted up, so are tips. By default, tipped positions have always been inadvertently attached to the Consumer Price Index.

Non-tipped restaurant workers can also expect higher pay with the shifts in the economy. Today it is difficult to find entry-level people in Greater Des Moines for less than $10 per hour. If one restaurant won’t pay it, another likely will. And the Golden Circle is not alone. With 1,000 jobs being added to Iowa’s restaurant industry every year, the competition to attract quality restaurant staff has never been stiffer.  

There are certainly rural communities where $7.25 is still viewed as a competitive entry-level wage. But even there, a good restaurant employee won’t stay at that rate long; they become too valuable too quickly.  

The true picture of how and what Iowa’s restaurant employees are paid, as well as the tremendous opportunities for an accelerated rate of career growth in our industry, is in large part why you don’t hear the restaurant industry leading the charge to challenge the Johnson County Board of Supervisors’ recent decision to create their own higher-than-state-level minimum wage. Quite frankly, most Johnson County restaurants were already paying more than the county’s new minimum.  

It would appear market-driven wages are already working to benefit workers in the restaurant industry.

The higher minimum wage itself is not actually what makes the Johnson County action concerning. Setting a county-specific minimum wage is a flagrant disregard of Iowa’s state pre-emption rules, which say the establishment of a minimum wage is the role of the state. Unchallenged, this may open the door to a veritable “Wild West” of circumvention by counties, as well as cities, on any number of issues. (Might we see a county or city allow smoking in its bars and restaurants for competitive advantage?) 

Once pre-emption is thwarted, counties and cities may well try to override whatever state laws suit them, and there’s no telling what a creative county board of supervisors might think to do.  

Meanwhile, Iowa’s restaurants will move forward, providing training and advancements to the 1 in 10 working Iowans employed by our industry. We will remain one of the last bastions of entrepreneurial spirit, where one may start at a mandated minimum wage, but can quickly work his or her way up to a much higher hourly wage, all the time knowing that working in our industry offers the true potential of one day owning the very business in which you started.