Minimum wage increase likely to lead to other pay hikes

Randy Marriner doesn’t employ any minimum wage workers at his Columbia restaurant, but he is concerned about the pending hike to Maryland’s new salary requirements.

Right now, hosts at Victoria Gastro Pub earn $9 an hour to start, well above the current $7.25 an hour minimum wage.

Cooks and other kitchen staff make $12 or $13 an hour, depending on their skill level.

And with the state’s minimum wage set to go up to $10.10 an hour by 2018, they’re likely to demand a raise, said Marriner, who owns the restaurant with his wife and two children.

“Any time you have hourly employees and you change the platform, it affects everybody,” said Marriner, who employs more than 80 workers.

When the Maryland General Assembly passed a law phasing in the wage increase over the next four years, the measure was cheered by labor advocates who said the increase would contribute to a rosier economy.

Opponents—many of them business owners—warned it would hurt them.

 “Businesses are going to be looking to cut back, looking to do more with less,” said Daraius Irani, executive director of the Regional Economic Studies Institute at Towson University. “The might choose to invest in (automated) equipment so they don’t need as many people to work.”

The law raises the minimum wage from $7.25 an hour to $8 on Jan. 1, 2015 and $8.25 on July 1, 2015. After that, the minimum wage will rise to $8.75 on July 1, 2016 and $9.25 on July 1, 2017.

The minimum wage will reach $10.10 an hour on July 1, 2018.

SEE MORE: Maryland General Assembly passes bill to increase minimum wage to $10.10 an hour

“There are going to be tradeoffs,” said Curt Grimm, a professor of economics in the University of Maryland’s Robert H. Smith School of Business. “There’s no free lunch out there. But to me, the biggest positive is it addresses the issue of income inequality.”

As of 2013, the country had 75.9 million workers who were paid hourly, according to the U.S. Bureau of Labor Statistics. Of those workers, 1.5 million of them – 4.3 percent of all workers—earned the minimum wage. Another 1.8 million earned wages below the minimum—usually servers in restaurants and other workers who rely heavily on tips.

The percentage of minimum wage workers in the labor force declined from 4.7 percent of all workers in 2012.

The federal minimum wage is $7.25 per hour. As of the beginning of 2014, 21 states and Washington, D.C. had wages above the minimum, according to the National Conference of State Legislatures.

Maryland was one of five states, plus D.C., that approved hikes to its minimum wage this year, though efforts to raise the federal minimum stalled in Congress.

Jack Temple, a policy analyst with the National Employment Law Project, said this year is the first year the fight to raise the minimum wage has really picked up steam.

He estimates about 450,000 Maryland workers will be affected by the state increase.

Not all of them, though, are minimum wage workers.

The spillover effect

Baltimore-based economist Anirban Basu said the increase will have hidden consequences for businesses with workers who make around the $10 or $11 an hour mark now.

Those employees – making above the minimum now – will probably want a raise if the minimum wage workers get one, Basu said.

For that matter, workers at all income levels might lobby for raises as a matter of equity, he said.

“Whether or not they should be, people are paying a lot of attention to what other people are making in their organizations,” Basu said.

Call it the spillover effect, Temple said.

In Maryland, about 304,000 workers make between $7.25 and $10.10 an hour. Another 151,000 workers make between $10.10 and $11 an hour.

READ MORE: Organizations launch minimum wage campaign

Based on what’s happened in other states, Temple expects all of those workers to receive fatter paychecks over the next few years.

However, he said that’s not a pattern that’s likely to continue up the pay scale. The National Employment Law Center has studied what’s happened in other states that upped their minimum wages, and he said this typically results in fewer raises for those at the top of the chain.

“We call it wage compression,” Temple said.

Washington state has the highest minimum wage in the country at $9.32 per hour, a rate that goes up every year based on inflation. The Seattle City Council, meanwhile, is mulling raising the minimum wage for employees in the city to $15 per hour.

Robert Plotnick, a labor economist and professor of public affairs in the Evans School of Public Affairs at the University of Washington, said the ripple effect is usually part of the debate over minimum wage.

Exact numbers are hard to quantify, he said. 

“The minimum wage debate is always the same debate,” Plotnick said. “Businesses say it’s going to cost them.”

Advocates for higher wages, on the other hand, say the old minimum is out-of-date and raising it will help reduce poverty.

But eventually, people adapt.

“People don’t even talk about it out here,” Plotnick said.

Basu predicted

industries that rely heavily on tipped workers, like the restaurant business, will experience some spillover.

“My sense is that there will be an increase in what those employers have to pay their tipped workers,” Basu said.

Tipped workers in Maryland earn $3.63 per hour, about half of the $7.25 minimum wage. Raise Maryland, an advocacy group that pushed for a higher minimum, wanted lawmakers to raise tipped wages so those workers eventually make $5.05 an hour.

The General Assembly opted to freeze tipped wages instead, which came as a relief to Marriner. Some of his tipped workers, once they collect their tips, clear $20 an hour, he said.

“And they deserve a raise why?” he said.

Joe Barbera, the owner of AIDA Bistro & Wine Bar in Columbia, said about 20 percent of his workforce is paid the minimum.

The problem really is with the other 80 percent. The minimum wage jobs tend to be entry level type work, designed for the employees to move up to a higher paid position rather quickly, Barbera said. Those jobs now pay in the $8.50 or $9 per hour range, below what the minimum wage will eventually be.

He said as soon as the first wave of raises takes effect, he’ll probably have to re-evaluate his staff to see who can take on more duties “since we have to pay them more.” 

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