With local leaders angling for a living wage, should businesses take the bait?

On first glance, Tramaine Isaac, 27, and Phillip Daniel, 46, might not have much in common.

In addition to their age difference, Isaac is a native Memphian who graduated from Carver High School and attended a hometown college. Daniel is a recent transplant to the area who relocated to Memphis under factors not of his choice.

But, what they have in common is working at lower-paying jobs for many years due to unforeseen life circumstances. 

Isaac attended LeMoyne-Owen College for a while, but his care for ailing family members got in the way of completing his degree.

Daniel battled substance abuse problems for years before a judge’s sobering order created a new path.

Today, Daniel makes no excuses about how addiction affected his life. He faced time in prison in Memphis but got a second chance through the Memphis Union Mission and HopeWorks.

Isaac heard from a friend who got a job with the help of a program at Advance Memphis, which serves the lower-income ZIP codes of 38106 and 38126.

Through Advance Memphis, Isaac worked for W.M. Barr & Co. on Presidents Island making $8 an hour, then he moved over to Barnhart Crane & Rigging, doing housekeeping work for $9 an hour. He is now an apprentice at Barnhart, learning fabrication and welding skills that could result in earnings of $17.50 to $22.50 an hour after he completes the six-to-nine-month apprenticeship.

Daniel was in front of a judge awaiting his fate when he was given a choice: Go to jail, or complete a program at the Memphis Union Mission that helps addicts transition from recovery to a more normal life and re-entry into the workforce.

He took the latter choice. Eventually, Daniel ended up riding a MATA bus to and from Moore Tech for two years to complete an associate’s degree in applied technology and a certificate in HVAC/industrial electricity.

He now makes $17.50 an hour working for the Memphis Ice Machine Co. The owner took a chance on him despite his background.

Isaac’s and Daniel’s stories illustrate that — much like the debate over raising wages — there can be many complex reasons why workers make and often struggle to attain a certain wage.

And, there are a variety of factors that businesses must account for when hiring — and setting a wage — for their employees.

The stories of Isaac and Daniel are far from unique in the Memphis metro. Low wages are the norm for many area workers.

According to the Memphis Business Journal’s analysis of U.S. Bureau of Labor Statistics data from May 2017, more than 100,000 workers in the metro made under $11 an hour, with 35 percent of all occupations locally having some workers at or below that mark.

The Massachusetts Institute of Technology’s Living Wage Calculator puts the Memphis metro’s living wage at $10.75 an hour for a single adult.

More than 200,000 people — or a third of Memphis’ workforce — made at or below $15 an hour. And, 60 percent of all of Memphis’ occupations had workers who earned $15 an hour or less. 

Some of the area’s largest employers are doing their part to raise wages. Shelby County Schools and Memphis City Council made commitments to raise lower-tier wages to $15 an hour. In February, First Horizon National Corp., parent company of First Tennessee Bank, announced it was raising employee minimum pay to $15 an hour, impacting 200 employees locally and 1,200 total companywide.

Raising the minimum wage above the current federal level of $7.25 — which is also Tennessee’s minimum — would affect a sizable portion of the Memphis workforce. Given the city’s high poverty rate, an increase could have a positive impact on the overall economy.

From that perspective, raising wages makes a lot of sense. But, businesses have serious concerns.

Fishing in troubled waters

One of the first types of businesses to feel the numbers crunch from a minimum wage hike would be quick-service restaurants, according to Charles Rodriguez, vice president of human capital management at Memphis-headquartered Adams Keegan Inc., a firm that provides employee and payroll services to businesses. 

Putting himself in the position of fast food operators, Rodriguez said, “‘I’m already working on an 8 to 9 percent margin, and there are only three logical conclusions: Raise prices either directly or indirectly; cut corners on my operations, which you can’t really do in fast food without harming the business; or cut [employee] hours and try to make do with less.’”

In response to higher labor costs —in part from minimum wage increases in some states — Wendy’s announced a plan to install ordering kiosks in 1,000 of its locations across the U.S. by the end of 2017, which could reduce employee hours worked.

The story is a bit different in the rest of the restaurant industry.

“Most of the restaurant industry — I can’t speak for the fast food chains — pays more than minimum wage,” said Ernie Mellor, Memphis Restaurant Association board president and owner of Hog Wild and A Moveable Feast catering companies. “Maybe not to start, but they move you up pretty quickly. That is for those who excel in what they do.”

Indeed, Daniel, who worked in the kitchen at the Memphis Union Mission, got a job while attending trade school at Carrabba’s Italian Grill, first working as a dishwasher making $10 an hour then getting a $2 an hour raise once he moved up in the kitchen.

“Rather than panicking [about increasing wage], restaurants need to be focused on the benefits they will see from better quality and more reliable labor,” Rodriguez said. “Because there is greater emotional financial stability on your staff, employees are less likely to leave you for a quarter of a dollar [wage increase] to go to your competitor across the street.”

Owners on the hook

Still, the “Fight for $15” movement gives pause to Mellor and owners in other businesses that would be directly impacted by any type of wage increase to $15 from current minimums.

“To take a person from a minimum wage straight up to $15 is basically doubling their pay,” Mellor said, referring to the federal/Tennessee minimum of $7.25 an hour. “The question becomes, ‘What do I do for people who are making $10, $15, $20, $25 an hour? Do I double their pay? If I don’t double it, it certainly has to go up.’”

An across-the-board increase such as that hypothetical could have big implications for smaller businesses.

“What does that do to the small business person? It crushes the business model,” Mellor said.

Another industry that would be hard-hit by a mandatory wage increase: child care.

Higher costs for child care center operators could get passed on to families who rely on those services.

That’s the concern for Stacey Neel, owner of Collierville Christian Academy, a child care center that employs 26 people.

“Businesses like ours that pay the majority of their employees less than $15 an hour would have to adjust their prices dramatically in order to meet the new minimum wage,” Neel said. “A huge hike in consumer prices would create a hardship for most families.”

Neel said her firm already starts its employees at wages above $7.25 due to the competitive market for workers. 

Most of her teachers have associate’s or bachelor’s degrees. Her highest-paid pre-K teacher is currently at $12.50 an hour.

“A minimum wage of $8.50 to $9 an hour would be more realistic and not create dramatic adjustments in consumer prices,” Neel said.

A common belief among business owners is that raising minimum wages would result in job losses. From Mellor’s perspective, that would be detrimental to his business.

“It would ultimately mean fewer people doing the same amount of work,” Mellor said.

That situation would additionally result in diminished employee retention, Mellor said, because the remaining workers wouldn’t be able to sustainably satisfy the increased production demands.

The give and take of balancing better wages and maintaining an employee roster makes for difficult choices.

“If you can wrap your head around a higher wage or survive the growth curve until prices can go back up, you’ll end up with a better product in the end,” Rodriguez said. “But, that is a hard sell to small restaurant owners.”

Data on the line

Much like the divide between those who support and those who oppose a raise in the minimum wage, research on low wages neither fully confirms nor completely dismisses the idea that raising the minimum wage is good or bad policy.

Instead, findings from research on the subject are mixed and open to interpretation from both sides of the debate.

The upshot from the sizable canon of past research on minimum wage increases and their effect on employment and the overall labor market has fallen on the side of increased wages having a small or negligible negative impact. In general, research has indicated that the positive impact of raising the minimum wage outweighs the negative impact by an acceptable-to-significant margin.

“If you look historically for any significant minimum wage increase — a few dozen over the past 40 years — there is a spike the first year, when employers scramble to adjust. But, over a five-year trend [the effect on employment] is statistically insignificant,” Rodriguez said.

In testimony before the Maryland House of Delegates in February 2018 in support of a bill to raise the minimum wage to $15 there, David Cooper, senior economic analyst at the Economic Policy Institute, noted that, over the past 30 years, most research and studies focused on minimum wage increases and the effect on employment generally found “essentially no effect of increases in the minimum wage on employment, neither positive nor negative.”

Yet, those findings were recently challenged by a University of Washington study. “Minimum Wage Increases, Wages and Low-wage Employment: Evidence from Seattle,” published in June 2017, looked at what happened when the city phased in a raise of the local minimum wage from $9.47 an hour — first to $11 an hour in 2015, then to $13 an hour in 2016.

The study found that raising the minimum wage to $11 had only a modest-to-zero effect on employment. 

The raise to $13 an hour increased low-wage job workers’ wages by 3 percent but reduced hours worked by 9 percent.

The study’s authors concluded, “Total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”

Critics of the study noted that while the researchers captured many small businesses, they did not include businesses with multiple locations, such as chain restaurants and big box retailers. As a result, the study’s data set excluded about 40 percent of Seattle’s total employment.

The study does fit with Rodriguez’s observations on the impact from moving beyond the $11 an hour range.

“In some regions, where you see a dramatic [minimum wage] increase, $11 is where [businesses] start to get heartburn,” Rodriguez said.

But, another study, looking at the same increase in wages in Seattle, contradicts, in part, the conclusions of Washington’s study.

According to the University of California Berkeley’s June 2017 report, “Seattle’s Minimum Wage Experience 2015-2016,” a wage hike for low-paid workers up to $13 per hour did not cause a discernible drop in employment. Specific to restaurants, employment effects of a minimum wage increase in Seattle “were not statistically distinguishable from zero.”

Adding to the mixed results, a UCLA study published in December 2017 focusing on restaurants in California found some benefits to earnings and some drawbacks to employment after raising minimum wages.

Summing up the difficulty and complexity in sorting out the impact of raising the minimum wage and wages in general, the UCLA study ended with only one conclusion: “There is more work to be done.” 

To fish or cut bait

While it is easy to focus on the fear that labor costs will escalate, businesses should key in on the positives of raising wages, Rodriguez said. His advice is to think of labor costs as being more in line with other costs, such as benefits and raw materials.

“Benefits are such a part of doing business that it is not thought of. What is interesting is that benefits are part of any other increase in costs,” Rodriguez said. “We know and accept that benefits are going to go up every year just like raw materials costs go up every year. But, when it comes to talking about labor, we get very skittish.”

He advises his clients to “always get out of the race to the bottom.”

“The more we try to suppress labor costs because everything else around it grows, and viewing that as the one place we need to put pressure, hurts businesses in the medium to long-term,” Rodriguez said. “There is less motivated talent, and you attract less quality of talent. You are strong-arming your most valuable asset.”

The better position for an employer to be in is ahead of the curve on raising wages, Rodriguez said.

“Wouldn’t you want to get on the front end of being the employer of choice?” Rodriguez asked. “And having the choice of the best available labor?”

This article originally appeared in Memphis Business Journal.