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Small Businesses Divided on Cities Upping Minimum Wage

May 28, 2015
Small Business
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Across the country, 29 states and the District of Columbia have a higher minimum wage than federal law requires.

Now wage increases are being pushed in large cities as well. The Los Angeles City Council recently backed a plan to raise the city’s minimum wage to $15 an hour by 2020, more than twice the federal minimum of $7.25. San Francisco and Seattle are among cities that have implemented a local minimum wage higher than the federal or state level.

If you’re a small-business owner, a higher wage will likely affect your operations in some way.

The National Federation of Independent Business, for instance, says increases in the minimum wage would result in job losses as employers try to counter rising labor costs. Meanwhile, other business groups, such as the Small Business Majority, say raising the minimum wage would boost consumer spending for small businesses by putting more money in people’s pockets.

NerdWallet asked some small-business owners how a higher minimum wage would affect their operations.

Supporters predict higher customer spending

Christin Evans, Booksmith

Christin Evans, owner of Booksmith in San Francisco.

Christin Evans is the owner of Booksmith in San Francisco, where voters approved a ballot measure to increase the minimum wage to $15 an hour by 2018. She says she supports a higher minimum wage because “if all businesses are paying a higher minimum wage it will be better for our economy and business in the long term.”

“We have always taken the approach of offering a higher wage than the city required. We are in position to increase wages as San Francisco’s minimum wage increases from $12.25 to $15 over the next several years,” Evans tells NerdWallet. “As technology has enabled greater efficiencies in our store, it has freed up staff time to develop new revenue opportunities for our business. I expect we will continue to hire at the rates we have in the past as we see increased growth and revenue from those new business areas.”

Gina Schaefer, co-owner of 10 Ace Hardware stores in Maryland, Virginia and the District of Columbia, also pays her employees above the minimum wage because it contributes to better customer service. The business also budgets for pay increases, she says.

Maryland and the District of Columbia have moved in recent years to increase their minimum wages.

Schaefer, a member of Business for a Fair Minimum Wage, says higher labor costs have not prevented the business from expanding. “We would expect to see a positive impact on our bottom line because of increased consumer spending with minimum wage increases,” she says.

Opponents worry about higher labor costs

Laura Kassovic, CEO of MbientLab in Los Angeles.

Laura Kassovic, CEO of MbientLab in San Francisco.

For Bob Paparelli, who owns The Patisserie bakery in Pearl City, Hawaii, an increase in the minimum wage means higher labor costs. And that could mean increasing prices on his baked goods. The state’s minimum wage will increase to $10.10 an hour by 2018.

Paparelli says you could see more technology or robotics in his industry. “I myself am looking into high-speed equipment to save on labor cost,” he tells NerdWallet. “You never know, you might see a robot asking for your order.”

Jose Villa, owner of Sensis, a cross-cultural advertising agency in Los Angeles, says he’ll have to stop hiring interns and junior staff members.

“Sadly, the biggest impact is on young workers trying to gain skills in my industry, as they will be priced out,” says Villa, a member of the National Federation of Independent Business’ California chapter. “I can’t justify charging my clients $15 an hour plus markup for someone who knows nothing and is learning the job.”

Villa says he’s also considering moving the office from Los Angeles to a more business-friendly city.

As chief executive officer of early-stage hardware firm MbientLab in San Francisco, Laura Kassovic would rather not pay herself. But the law requires that she and her co-founders be paid the minimum wage — and a higher one, at that, with the recent increase.

“For every dollar we must pay ourselves and the MbientLab team, regardless of whether or not we want a paycheck, that’s one more dollar we have to make up for in sales, and that’s one less dollar we can re-invest into the company,” Kassovic tells NerdWallet. “It will take longer for the business to become sustainable, and that means slower growth and stunted expansion plans.”

Hanah Cho is a staff writer covering small business for NerdWallet. Follow her on Twitter @hanahcho, on Google+ and on LinkedIn.

Image of San Francisco City Hall via iStock.