When Colorado voters approved an increase in the minimum wage of 14 cents an hour beginning Jan. 1, the owners of two businesses in Woodland Park cite unintended consequences.
On the surface, the increase seemed a boon for tipped employees, restaurant servers, for instance, whose hourly wage is now $4.76 and for non-tipped, it's $7.78 an hour.
The kicker in the law is that the minimum wage is linked to inflation according to the Consumer Price Index for Denver, Greeley and Boulder.
That really gets to Pete LaBarre, chief executive officer of High Country Restaurant Holdings which owns Denny's in Woodland Park. “It makes no economic sense to have a state-mandated wage based on markets we don't operate in,” he said.
LaBarre has his suspicions about the source of the wage-inflation connection. “If we have to mandate, there are certainly econometrics available to determine what the CPI would be,” he said. “But they don't want to do it that way, because it doesn't score political points.”
Particularly grating for LaBarre is the fact that the new law is now part of the Colorado Constitution. “It's ridiculous,” he said. “Now, to get it removed you have to have a vote of the people. Quite frankly, our constitution is in shambles right now; it's absolutely an atrocity the way it's been abused by special-interest groups to get things on it.”
Most of Denny's servers earn anywhere from $15 to $20 an hour, including tips. “They make it because they are good at what they do,” he said. “Based on our sales numbers, and customers who tip an average of 15 percent, our servers average $12 an hour in tips alone,” he said.
Servers make up about 60 percent of Denny's employees. “So they're making more than just about everybody and by law I'm required to pay them an additional 14 cents an hour,” LaBarre said. “It's egregious and designed to reward servers greater than it does other workers.”
Granted, LaBarre speaks from a business owner's standpoint. “Now we all deserve to make more money but the way you make more money is not by having state regulators dictate what it is you get paid,” he said. “You let the markets determine what you get paid.”
A study by the Federal Reserve Bank of Chicago found that for every $1 increase in the minimum wage, households with minimum-wage workers increased spending by $800 a year. The study, however, cites the decrease in savings as a result of income redistribution, thus, having ambiguous effects on economic growth.
However, according to an article in the Huffington Post, economists argue that a minimum wage-boost is like a stimulus action that pumps money into local economies.
LaBarre, former economics professor at Pikes Peak Community College, disagrees. “What happens with price fixing or wage control is that everything goes up and buying power goes down,” he said. “For me, I have to raise my prices or reduce my costs; if I don't reduce my costs eventually I go out of business. It's not a stagnant thing.”
Wages for servers at Denny's are tied to productivity. “If they don't produce at a rate we need them to they lose their position,” LaBarre said. “If we have a server who can't handle the number of guests per hour they'll go onto a shift where there are fewer guests. And they'll make less money.”
Denny's servers are judged on their personality, appearance and how they engage with the customer. “They're the front line of our business; if they're not on their game our guests let us know,” LaBarre said. “Servers are extremely important to the success of our business; they can make or break us.”
COMMENTS FROM THE STAFF
For at least two Denny's servers, the increase is just so-so. “Am I going to see much of it?” said Sandy Wakefield. “Everything is going up but the raise will make everything going up just a little more obtainable.”
Admittedly conservative when it comes to spending, Wakefield has no plans to spend more. “I buy what I need and that's it,” she said.
Darrell Ridenour more or less agrees. “I don't see that 14 cents an hour is going to make a whole lot of difference,” he said. “Plus, they take out 40 cents an hour for our meals here, whether we eat or not. Sometimes you just don't feel like eating.”
A two-year resident of Woodland Park, Ridenour was unaware that Colorado voters approved the increase in the minimum wage in 2010. “I would have voted for it, had I known,” he said.
At Grandmother's Kitchen, Diane Gagnon, a server, takes umbrage at the source of her automatic raise. “I'd rather get a raise for the good job I've done, not because the government says so,” she said.
Gagnon's bosses, Thor and Jerri Furnes, agree. “I feel we should be able to reward our employees on their merit,” Thor said. “With the raise, servers just have to show up to work, don't have to do anything extra. Our employees are great and I try to be good to them.”
Tying the minimum wage to inflation could backfire on tipped employees. “Two years ago the inflation rate went down but you're not going to decrease wages,” Jerri said. “That's just wrong. You're not going to take away your employees' wages.”
The raise perpetuates a vicious circle, Thor said. “When a business has higher labor costs, the owners raise their prices,” he said. “So employees who get the raise are back at square one because they're paying higher prices at the grocery store, everywhere. You could raise the minimum wage to $50 an hour but a gallon of milk is going to cost $15.”
While the variety of minimum-wage jobs varies, the increase particularly hurts the restaurant industry. “Our profit margin is small compared to a computer agency where the profit margins are huge,” he said. “Or the oil industry.”
Minimum-wage jobs were not meant to be a career but an entry to the workforce, or for making a little extra income, Jerri said. “It's not designed for a family of four to be living off the minimum wage.”
For the Furneses, the vote by the people was perplexing in many ways. “I understand the thought behind it because you don't want somebody working and not making a decent wage,” Jerri said. “But when it's mandated like that it doesn't work because everything else increases right along with it.”
If the wage weren't tied to inflation, the increase might be a little more acceptable, Jerri said. “I think a lot of people don't fully understand the implications of it,” she said. “Maybe voting on a one-time increase I could possibly see but tying it to our constitution? That means the raise is forever because it's tied to the consumer price index.”