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Business owners cope as Chicago's minimum wage creeps higher

November 30,-0001 00:00

Udartseva said she would not mind the wage increase if Chicago made it easier to do business, such as by smoothing the permitting processes, or if there was a return on investment with happier employees. But "their thinking is that it's still a minimum ...and more »



Aly Udartseva braced for the worst when Chicago announced in 2014 that it would gradually raise its minimum wage to $13 an hour.She and a partner had recently opened Bru Chicago, a cafe in Wicker Park, and she worried that even the first phase of the increase would force them out of business, given their slim margins.
A year later, Bru remains, having survived the first jump to $10, from $8.25 last July.But Udartseva's anxiety about rising labor costs remains as well.

"If you look at the expenses on the payroll, it's mind-blowing the difference from what it used to be," Udartseva said. "I understand if I saw the increase in people's happiness and satisfaction, but that's not the result at all."As Chicago added another 50 cents Friday, bringing the minimum wage to $10.50, some employers say they are coping, but it's been tough.Research has offered conflicting findings on how minimum wage hikes affect jobs, prices and spending, and it's too soon to know the impact of a recent wave of local laws. Since 2013, 18 states and 38 cities and counties have approved minimum wage increases, including a dozen that have adopted $15 wage floors, according to a list on RaisetheMinimumWage.com, a project of the advocacy group National Employment Law Project. Hillary Clinton, the presumptive Democratic nominee, has supported raising the federal minimum to $12 an hour, from $7.25.In Chicago, a handful of businesses say they feel squeezed.
Udartseva, who pays four of her eight employees minimum wage, said she raised prices on some items by as much as 15 percent to absorb last year's wage bump, but lowered them when she noticed a slowdown in customer traffic.The cafe, which sells crepes and smoothies as well as espresso drinks, has been busy enough to pay the bills. But now rising property taxes are driving up her rent and putting additional pressure on her bottom line, she said.With a new coffee shop recently opened a block away and another slated to open nearby this fall, Udartseva worries about keeping her prices competitive.To differentiate, Bru is focusing on product quality and being creative with revenue streams, such as by partnering with social groups to host their events at the cafe, she said.Udartseva said she would not mind the wage increase if Chicago made it easier to do business, such as by smoothing the permitting processes, or if there was a return on investment with happier employees.But "their thinking is that it's still a minimum wage job," she said, and she has less money to reward the top performers.Hank Meyer, co-owner of BJ's Market and Bakery, which has two restaurants on the South Side, also said he hasn't seen improvement in employee retention or satisfaction with the new wage. He's having trouble hiring for open positions."There doesn't seem to be an appetite for the jobs," he said. "I get it, we work in a hot environment, seven days a week."Meyer, who employs about 40 people who earn the minimum wage, said he increased prices on some items by about 10 percent to maintain his margins when wages rose, and feared the move might put his Southern-style food out of reach of customers living in the low-income communities where he operates.While his restaurant in Calumet Heights has seen a rise in catering business, Meyer said sales have suffered at his restaurant in Gresham, where he suspects customers' average income is lower.He isn't sure the sales decline is tied to the price bumps, but he wonders if they contributed.BJ's is now offering aggressive deals — a recent special charged $5 for rib tips and a drink, down from the regular $11 — to attract customers who may have been put off by the higher prices. The restaurant also is regularly reviewing the menu to offer meal combinations that soften the sticker shock, and has added items, like jerk chicken, that have proved popular elsewhere, Meyer said.The slowdown has had a silver lining. Meyer and his partners have grown a new business selling prepared food to Whole Foods and Mariano's for their hot bars, offsetting some of the decline in restaurant sales.Some business owners cheer the pay raises, saying improving the standard of living for employees boosts sales."It stabilizes your workforce, which is just terrific because you have really knowledgeable people," said Tony Dreyfuss, CEO of Metropolis Coffee, a roastery and coffee wholesaler that runs a cafe in Edgewater.Metropolis, which pays a starting wage of $11.50 for nontipped employees and offers 15 days of paid time off, intends to keep raising pay to stay above the city minimum so it can attract the best talent, said Chief Operating Officer Dan Miracle. The company, which has 55 workers, is busy and growing, and he thinks they can keep pace without increasing prices.Research is just beginning to examine the actual impact of wage hikes in cities, which are a relatively new phenomenon. An early analysis of Seattle's move to raise the wage to $15 an hour, released in April by the University of Washington, found that while most businesses said they planned to raise their prices, there was "little or no evidence" of actual price increases in Seattle relative to other areas in the first year of the gradual phase-in.The Federal Reserve Bank of San Francisco put out a paper in a December that said the overall body of recent evidence suggests a higher minimum wage results in some job loss for the least-skilled workers. Author David Neumark estimated current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000 compared to the period just before the Great Recession, a small drop that should be weighed against the benefits of increased earnings for workers who kept their jobs.Reams of research have studied the potential impact of raising the $7.25 federal minimum wage, with no clear consensus. When the University of Chicago Booth School of Business asked a panel of more than three dozen economic experts last year whether the employment rate for low-wage workers would decline substantially if the federal minimum wage increased to $15 an hour by 2020, nearly 40 percent said they were uncertain. The rest of the responses were split relatively evenly, with slightly more people saying they agreed employment would be lower.There was more consensus on whether a hike to $15 would substantially increase output in the U.S. economy, with more than half saying it wouldn't. Just 2 percent said it would.
The Federal Reserve Bank of Chicago did an analysis in 2013 that found a $1.75 increase in the federal minimum, to $9 an hour, would boost prices and spending among low-wage workers and could increase the level of gross domestic product by 0.3 percent in the short term, but would have virtually no effect in the long term.In another study the same year, Chicago Fed researchers found a large minimum wage increase leads businesses to leave town sooner than they might otherwise, and while other businesses move in to take their place, they tend to be less labor-intensive so there is a net loss of jobs.
The question of whether minimum wage increases lead to automation replacing workers has taken on heightened interest as huge employers like McDonald's test self-service kiosks. In a new working paper, Chicago Fed economists found wage hikes lead to a decline in employment among jobs that involve cognitively routine tasks, such as cashiers, but not among jobs that require intensive manual work, such as maids.Some research has found that a higher minimum wage is associated with happier people. McDonald's this past spring reported reduced turnover and higher employee satisfaction scores after it raised its lowest wage and offered paid vacation days to workers at its company-owned stores (which are only about 10 percent of the chain's restaurants).But a year into Chicago's gradual wage increase, McDonald's worker Irma Diaz, who works at a franchise store, is feeling no happier.Diaz, who said she still earns the minimum wage after working for 15 years at McDonald's, said the city's raise to $10 hasn't made it easier to make ends meet. The restaurant has cut hours, and her schedule has dropped to four days a week from five. Other costs of living have gone up, so "in the end you're kind of earning the same."Diaz, a single mom to a 16-year-old son, said she earns about $500 every two weeks, depending on her hours, and her monthly rent is $650. She sells Mary Kay cosmetics to supplement her income.Workers covet jobs in Chicago because the wage is higher than in the suburbs, she said, but ultimately she does not feel more satisfied with her job, and wants a union and benefits."We know that they have money to pay us," said Diaz, who is part of the Fight for $15 campaign, which advocates for a $15 hourly wage for fast-food workers.Jay Goltz, owner of Artists Frame Service and Jayson Home on the Clybourn Avenue corridor in Lincoln Park, said Chicago needed to raise its minimum wage to at least $10, as "it was too cheap in the first place."But he worries about the accelerating increases. The wage will rise to $11 a year from now, to $12 a year after that and finally to $13 in July 2019. It will then be tied to increases in the consumer price index, capped at 2.5 percent. Tipped employees also got a boost Friday, to a $5.95 hourly minimum."I don't think the problem is going to be now," Goltz said. "The problem is going to be when it hits $12."The higher wages are coming as businesses also absorb big increases in health insurance costs, he said, and they could deter employers from offering workers benefits. Goltz said his health insurance costs rose 23 percent between 2012 and 2013, 16 percent the following year and 9 percent the next year. They would have jumped another 15 percent this year if he hadn't changed vendors, he said.Debates about the minimum wage should take into consideration that some employers already shoulder higher costs to give workers health insurance and paid time off, he said."There is a point of no return," Goltz said. "I mean, literally, no return on owning a business."aelejalderuiz@tribpub.comTwitter @alexiaer

minimum wage,chicago,bru chicago,bj market and bakery,aly udartseva,hank meyer,irma diaz,fight for $15,federal reserve bank of chicago,economy

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