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Small businesses brace for minimum wage hike

Economists and politicians may disagree about the economic impact of a looming increase in the U.S. minimum wage, but Ohio restaurateur Dean Gregory already knows how much it will cost him.
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Waitress Diana Parker and restaurant owner Dean Gregory chat during a post-lunch lull at Gregory's Montgomery Inn at the Boathouse restaurant in Cincinnati. Gregory says an expected increase in the minimum wage will cost him at least $125,000 next year.Staff / Reuters
/ Source: Reuters

Economists and politicians may disagree about the economic impact of a looming increase in the U.S. minimum wage, but Ohio restaurateur Dean Gregory already knows how much it will cost him.

“We've already figured out it's going to cost us between $125,000 and $150,000 a year. I'll have to raise my prices, definitely,” Gregory said.

Perched above the Ohio River in downtown Cincinnati, Gregory's Montgomery Inn at the Boathouse is the busiest independent restaurant in Ohio, serving hundreds of plates of its famous barbecued pork ribs a day.

The second-generation family eatery is one of many small businesses in America braced for a higher minimum wage.

In midterm elections in November, voters in Ohio and five other states approved increases in base pay in their states, and Democrats have pledged to use their new control of Congress to raise the federal minimum wage to $7.25 an hour over two years from the current $5.15, the first increase in a decade.

Some 14 million workers, or 10 percent of the U.S. workforce currently making less than $7.25 an hour, would see pay increases from the move.

America's low 4.5 percent unemployment rate means few employers actually pay minimum wage anymore — even McDonald's Corp. typically starts workers above $6. But restaurants who rely on tipped workers and small businesses who hire teenagers for part-time or summer work say the raise will hurt.

In Ohio, the wage is set to climb to $6.85 from $5.15 on Jan. 1. The minimum for workers who collect tips, a separate standard, will increase to $3.43 from $2.13.

At The Boathouse, dishwashers, cooks and busboys already earn more than $5.15 — “Nobody will work for minimum wage,” Gregory says. But waiters and waitresses get $2.13 an hour, plus tips.

At that rate — excluding tips — it would take servers at The Boathouse more than 10 hours to pay for a slab of the restaurant's ribs.

With tips, a good server can make up to $50,000 a year, said Jeff Ruby, owner of the high-end Jeff Ruby's steakhouses in Indiana, Kentucky and Ohio.

While the restaurant industry has been the most vocal opponent of the wage increase, Ruby said the tight labor market means he's already paying up to $11 an hour for dishwashers at his restaurants. An extra $1.30 an hour for his waitresses is a drop in the bucket in such a competitive market.

“It's not going to be a huge deal for us,” said Ruby.

Outside the restaurant industry, employers say the looming increase will have a more indirect impact, raising the overall cost of unskilled labor and, eventually, the cost of goods and services throughout the economy.

Some economists and Republicans have argued the burden on business will end up hurting workers: Employers won't be able to hire as many workers or will give them fewer raises; and the cost of living will go up, erasing the gains in pay.

Ron Schneider, a landscaper in Toledo, Ohio, says he typically hires three or four teenagers each spring to help with planting. He starts them at about $6 an hour, above the minimum wage, “just to keep them interested.”

If they stick with him through high school, working part time or during summers, they'll be making $9 or $10 an hour as automatic and merit raises add up.

Now, Schneider will have to start the kids at $6.85 an hour. He said he can't afford to pay them more than minimum wage anymore, and he won't offer as many raises. The higher costs also mean he can't bump up the wages of his more experienced workers, which they may resent.

“Most likely they won't get raises as quickly as they might have,” said Schneider. He believes competition will limit his ability to raise prices immediately.

While Schneider didn't bother to fight the proposed wage increase — he said he knew popular opinion was against him — he thinks the public may regret its generosity.

“I don't think consumers quite understand that at some point they're going to have to pay for the increased cost of goods,” Schneider said, pointing out that the poorest Americans — which the wage increase was supposed to help — will feel the pinch of rising prices the most.

But Diana Parker, a 43-year-old server at The Boathouse with 25 years as a waitress, said the impending raise is great.

“I think the economy is ready for something like this,” said Parker. “It means a lot to me. Servers are finally getting a break.”

The married mother of two said she earns between $40 and $50 in tips during the average six-hour lunch shift, giving her hourly earnings of about $10 when her $2.13 wage is included.

Sometimes tips are good, but sometimes diners leave a measly $5 tip for an $80 bill. An after-lunch lull sometimes means no customers and no tips — meaning Parker is filling salt shakers or vacuuming the floor for $2.13 an hour.

“The tips don't always compensate for the low wage,” Parker said. She's thrilled that Democrats have pledged to raise the federal wage even above Ohio's new high.

“Go Democrats,” said Parker. “We needed this; we've needed this for a long time.”