The early evidence of Washington state’s minimum wage increase is in, and the results so far are not promising.
In January the state’s starter wage increased to $11 on its way to $13.50 by 2020. Since then, numerous small businesses in the state have been forced to cut job opportunities or close their doors in response.
O’Doherty’s Pub in Spokane is closing, with the owner citing the wage hike as the determining factor. Louisa’s Café in Seattle is doing the same, with the owner reluctantly admitting that the new minimum wage played a role. Nostalgia House Bakery in Port Orchard is cutting hours and nearby Spiro’s Pizza & Pasta has laid off an employee to try to adapt to the increased labor costs associated with the wage hike.
Numerous state childcare centers, which operate on razor thin profit margins, have been forced to cut staff hours, dramatically raise prices, or consider closing because of the new wage mandate.
“I strongly doubt that there will be any privately-owned child care centers in Washington within two or three years,” says Yakima daycare owner Lawrence Fournier.
Then there’s the dilemma facing the small Gig Harbor store Animal Crackers, which sells used toys and clothing as well as retail items. While this store is hardly the face of the state’s bustling economy, it is a face of its incoming $13.50 minimum wage.
The store brings in roughly $160,000 in annual revenue and has about the same amount of expenses, plus or minus about $10,000 depending on the year. It’s essentially a break even proposition. About $40,000 of the annual expenses go to the labor costs associated with four employees who staff the store part-time. January’s 16-percent minimum wage hike increased annual labor costs by about $6,500, putting increased pressure on an already slim-to-nonexistent profit margin.
Minimum wage proponents argue that businesses can offset labor cost increases with minor price hikes. But in the highly competitive retail sector, customers are extremely price-sensitive and can quickly compare prices on eBay or simply choose not to buy at all.
With price hikes not being an option in this environment, Animal Crackers is trying to remain in the range of profitability by lowering the commission it pays consignors to 30 percent from 40 percent. But this isn’t a silver bullet: Consignors need a large enough incentive to bring their goods in to sell, and not simply trash them or give them to Goodwill.
Yet even if consignors accept this rate cut, it will likely only buy time. When the $13.50 minimum wage takes effect, Animal Crackers’ annual labor costs will increase by $17,000 over 2016 levels, a cost increase that is nearly impossible to absorb.
As a result, the store is being shopped to a prospective owner-operator. Such a buyer could own and run the store personally and turn the labor expenses into a modest salary and therefore avoid the problem with the $13.50 minimum wage mandate. If no such buyer emerges by the time $13.50 takes effect, the store will simply close down.
Closing wouldn’t just affect the owner. It would also eliminate a valuable service to the community. One of the reasons why the store remains open after ten years of slim or absent profit margins is because of the hundreds of positive comments from customers and broad community support. Closing would also eliminate entry-level employment opportunities that offer not only a paycheck, but also skills like customer service and basic accounting that allow employees to quickly move on to higher-paying, higher-skill jobs.
Washington’s economy, which is driven by a tech-savvy and educated workforce, is booming. A $13.50 minimum wage won’t change that. But on the margin, it will reduce the number of independent small businesses like Animal Crackers that cannot cope with the mandate and the entry-level jobs that go with it.
Jordan Bruneau is a senior research analyst at the Employment Policies Institute, which receives support from businesses, foundations and individuals.