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Portland Wage Hike Potentially Devastating to Small Businesses

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By Steve DiMillo – This week, a Portland task force will hear final discussions on Mayor Michael Brennan’s proposal to increase the city’s minimum wage. While the hearts of advocates may be in the right place, heads most certainly are not. A minimum wage hike to $9.50 per hour in 2015 and possibly even to $10.75 by 2017 would create economic hardship on locally owned businesses that will hurt job opportunities for the very people that the wage hike is intended to help.

These businesses are low-margin and low-profit, generally making only a few cents for each sales dollar. They also devote a third of their budget to wages and benefits. A $2-3 dramatic hourly increase in the cost of labor would force these small business owners to make some hard choices. Currently there are very few employers who even pay minimum wage, especially in the foodservice industry in Portland, but this increase would create upward pressure and cost on competitive wages currently paid to our employees.

The proposed elimination of the tipped minimum wage would be particularly devastating to restaurants, costing approximately $10,000 annually per tipped employee. Servers and waitstaff are already among the best paid in restaurants, making well above this proposed increase at an industry average of between $16 and $22 per hour. If the tipped minimum wage were to be eliminated it would have dire consequences for Portland’s dining scene.

When faced with such an increase in the cost of labor, one option for restaurants is to raise prices, but people often choose to stop eating out when prices suddenly increase. That’s why price hikes often lead to lower overall sales or a loss of revenue at restaurants, especially when competing businesses across city lines can offer cheaper prices.

An alternative to price hikes is to explore technology advances that will alleviate labor costs, but this will also lead to fewer job opportunities for entry-level employees.

In the end, to meet the high costs of a minimum wage hike, businesses are left with little choice but to scale back employee hours or eliminate jobs altogether. Given our still struggling economy and other increasing government regulations on business, this is one step closer to insolvency.

Mayor Brennan’s proposal would set the minimum wage even higher than the proposed federal wage increase to $10.10. According to a recent report released by the nonpartisan Congressional Budget Office, the national push to raise the minimum wage to $10.10 per hour would cost 500,000 jobs nationally in 2016.

It’s important to understand that the minimum wage is an opportunity wage. It gives young and lesser-skilled employees a starting point to acquire skills, experience and learn work ethic that will take them to that next rung on the job ladder. Restaurants provide first job opportunities and on the job-training to 1.5 million teenagers and 2 in 5 restaurant employees are under the age of 25.

Those that start at minimum wage and work hard advance quickly. Restaurants remain one of the few industries today that offers a clear entrepreneurial career ladder—from dishwasher to line cook, from busser to server to management and someday ownership. 80 percent of restaurant owners started in an entry-level position within the restaurant industry.

Sadly, a mandatory wage increase could further restrict these job opportunities and path for young and lesser-skilled individuals.

But a minimum wage hike wouldn’t just impact jobs. It would also undermine our city’s economic competitiveness. Businesses in areas surrounding Portland would have an economic advantage over us. While our businesses suffer from burdensome new costs, those across the city lines will be able to offer sales and prices that we just can’t match. That means less business coming through our doors and less tax revenue coming into the city.

Portland business and residents will have an opportunity on August 20th to speak their mind on this important issue. Let’s hope the city’s task force will listen.

Steve DiMillo is the manager of DiMillo’s on the Water in Portland
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