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Fight for $15: Is a minimum wage increase economic justice or an economic death sentence?

Now that legislators in California and New York have passed measures to raise their respective minimum wages to $15 per hour, the push to “Fight for $15” is sweeping the nation. Would a minimum wage hike in Utah be a step toward economic justice or a death sentence for small, struggling businesses?

“It would kill us,” says Jessica Fowler, co-owner of the iconic Burger Bar restaurant in Roy. “It’s something we worry about all the time.”

Restaurants, which fit within the leisure and hospitality industry, employ the largest number of minimum wage workers in Utah, followed by retail trade, and education and health services. The Burger Bar actually pays wages that are much higher than the minimum wage—$17 per hour for some of its workers—but Fowler says it would be a catastrophe if the restaurant had to start every employee out at $15 per hour.

“We invest heavily in the employees that stay with us and don’t want them to be trapped at $7.25 per hour. Still, it is unrealistic for us to pay unskilled, entry-level employees the same wage that we pay our trained employees that have been with us a long time,” she says.

Market forces

Carrie Mayne, chief economist for the Utah Department of Workforce Services, believes a California- or New York-type minimum wage hike in Utah is unnecessary because wages here are largely driven by economic conditions. And with the state’s economy currently humming in high gear, low unemployment and competition for labor are naturally driving up wages, even for entry-level positions.

In the heyday before the Great Recession, many fast food employers in the state were offering $10 per hour—not by mandate but because of competition for workers. Theoretically, Mayne explains, a minimal minimum wage bump would not have affected those employers—they were already paying more than the national standard.

She suggests the minimum wage actions by California and New York align more closely with the idea of raising wages for low-income workers to compensate for the high cost of living in those states. In other words, it’s a push toward “economic justice,” as one California legislator called it. But a dollar goes much further in Utah than it does in cities on the East or West Coasts. With Utah’s lower cost of living, the minimum wage need not be on par with other, higher cost of living states, Mayne says.

Natalie Gochnour, associate dean of the University of Utah’s business school and chief economist for the Salt Lake Chamber, has similar sentiments. “Raising our minimum wage to match higher-cost states like New York and California would be wrong for us,” she says. “Our employers are seeing the need individually to raise wages as they compete for workers. Market-driven wage growth is the preferable route.”

It’s true that wages in Utah have been rising since last year and will likely continue as long as the strong economy prevails. The state ranked eighth for wage growth at the end of 2015, according to data from the U.S. Bureau of Labor Statistics. Gochnour points out that the approximately 28,000 Utahns receiving the minimum wage are fewer than 4 percent of all Utah wage and salary workers. “That would tell you our market wages are substantially higher already,” she says.

Utah’s minimum-wage earners can largely be found among certain pockets of worker types: lower skilled, entry level, probably younger workers. A Utah Department of Workforce Services analysis of 2014 data by the U.S. Census Bureau found that about 40 percent of Utah’s minimum wage workers are under the age of 25.

Mayne says Utah’s numbers align closely with national averages. Therefore, some 60 percent of Utah’s minimum-wage workers are estimated to be second-income earners. “Obviously, we don’t know what the first income earner is making, and if both wage earners are making the minimum wage in the family that could be a problem,” she says.

Policy options

To be sure, raising the minimum wage in Utah is a political hot potato. Gochnour says for the last two years, maybe further, various state legislators have tried to raise the minimum wage in Utah, but the measures didn’t receive much traction. Last year, Salt Lake City Mayor Ralph Becker proposed raising the minimum wage for city workers to $10.10 per hour, but Utah’s minimum wage is pegged to the federal minimum wage and cities don’t have the legislative authority to change that. Nationally, there have been discussions around raiding the minimum wage to $12 per hour and/or setting it to adjust with inflation.

Some proponents of increasing the minimum wage in Utah believe it would help address the gap between wealthy and poor individuals in the state. But Gochnour says there are other policy tools to help low-wage workers and that a minimum wage increase is not the panacea to cure wage disparity.

“I would point to two policy tools that have the capability to do more good in our state than a minimum wage increase,” she says. “One is the earned income tax credit, which is targeted to low-income families with children, whereas the minimum wage is really targeted to low-wage workers. The other one is a longer-term solution: The most important thing we can do for low-wage workers is workforce training to increase their skills so they qualify for higher-paying jobs. The financial return of education is high.”

Ultimately, policy interventions that help people finish high school, complete college or obtain vocational skills training will have a greater impact on low-wage workers over the long run. “Education is the most important thing we can do for low-wage workers,” Gochnour says.

The minimum wage debate is likely to intensify nationally, but any significant jump in the minimum wage across the board is predicted to put a chill on hiring as employers respond to the mandate to pay non-market wages.

The former CEO of McDonalds predicted in May that a $15 per hour minimum wage increase would unleash a “robot rebellion.” Locally, restaurants like Burger Bar may not have the means to deploy automation across the board, but Fowler says her company could easily turn to kiosks to cut costs.