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The Minimum Wage and Profits

by Ken Vincent, Featured Contributor

We are all aware of the recent demonstrations in several cities pushing for a federal minimum wage of $15/hour.  The hospitality industry, food service, and retailers have a high percent of their employees at or slightly above the minimum wage.

CashI read an article in the Dec. 12 issue of the WSJ that said that SeaTac, Washington has passed a local law requiring a $15 minimum wage for workers in some industries, but excluding others.  That takes the local minimum up from $9.19, a 60+% increase.  Other cities and states have, or are in the process of, raising their minimums too.   Among the more notable are:  D.C. +$1.25; California +$1.00; New York +$.75; and New Jersey +$1.00.

With many businesses in the most affected industries operating in the red, or on razor thin profit margins one has to ask what effect the increasing minimum wage laws will have.

To compound the economic impact of an increased minimum wage one has to consider that many of these same businesses are locked into expensive leases for real estate and FF&E.  They have high cost debt and the prices of their raw products are continually ratcheting higher.  Any cash reserves they may have are probably earning less that the rate of inflation.  They are also faced with continually increasing costly regulations and now the ACA requirements.

Unlike the federal government businesses can’t print money, so these increased costs must come from either cost reductions, or price increases.

Some feel that their business in not affected because they already pay more than the minimum.  History shows that significant increases in minimum wages have a ripple effect up the ladder.  It tends to move all pay rates higher.  Any business that doesn’t increase their pay rates finds they have a very difficult time in attracting new personnel.

So the question becomes, what is your business going to do to absorb higher wage requirements?

Will you cut jobs, reduce hours for some, close parts of your business, or raise prices?  Do you even agree that in this economic environment this is a good time to increase the minimum wage?


 

Ken Vincent
Ken Vincenthttp://sbpra.com/KennethVincent/
KEN is a 46 year veteran hotelier and entrepreneur. Formerly owned two hotels, an advertising agency, a wholesale tour company, a POS company, a leasing company, and a hotel management company. The hotels included chain owned, franchises, and independents. They ranged in type from small luxury inns, to limited service properties, to large convention hotels and resorts. After retiring he authored a book, “So Many Hotels, So Little Time” in which he relates what life is like behind the scenes for a hotel manager. Ken operated more that 100 hotels and resorts in the US and Caribbean and formed eight companies. He is a firm believer that senior management should share their knowledge and experience with the next generation of management.

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