Wage Hike Really A Tax on Business

By on Sun, Sep 23, 2012

Now that the courts have dropped the political hot potato of minimum wage on Albuquerque voters, the issue will now be on the November election ballot. It is a complex and poorly written ballot question which, if passed, will have a significant impact on the city’s economic viability.

My advice to the voters is to just look to Santa Fe as an example of the unintended and harmful consequences that artificially raising the wage will have in your community.

Santa Fe’s experiment with a locally mandated minimum wage is now 9 years old. At this point it is effectively a constantly increasing tax on businesses that create entry-level jobs. The mandated wage rises every year. It never goes down and is now 27 percent higher than the rest of the state.

Before the mandated minimum reaches $25 an hour – which it will – let’s examine its consequences.

There are many examples of businesses in Santa Fe that have gone under because of the increased minimum wage. One is the Wing Basket, a small Cerrillos Road restaurant that was forced to close 17 months after it opened its doors, the owners pointed directly to the high mandated minimum wage.

And it’s not just restaurants. Hastings Books, Music and Video also on Cerrillos Road cited Santa Fe’s high wage requirements and the resulting decline in profits as reasons for closing its doors.

Other businesses have cited the minimum wage law among their reasons for closing, downsizing staff or hiring fewer part-timers, for example. And other companies have not relocated to Santa Fe because of the additional mandated expense.

There are still questions members of the Santa Fe business community are grappling with that Albuquerque will also confront:

♦ How many layoffs will occur because of the mandated wage?

♦ How many people will have their hours cut?

♦ How many businesses will cut their charitable contributions?

♦ How many business will cut employee benefits?

♦ How many businesses will cancel plans to expand or relocate to Albuquerque?

♦ How many programs that employ interns or students will discontinue these efforts or cut back?

Quite frankly, the only way businesses can survive is by raising prices – which ultimately leads to a higher cost of living. Santa Fe has experienced all of these challenges resulting from its increase in minimum wage. The question for Albuquerque is how long will businesses survive in an environment that prevents them from competing with out-of-town companies?

We have seen that in this tight economy the hardest hit are young people seeking their first job. What chance do they have of being hired if they are unable to gain any experience?

With more and more mature people reentering the workforce this potential situation becomes even more or a challenge. Why would anyone start a business that depends on entry level staff if the mandated entry-level wage could easily be $15, $17 or higher in a year or two?

As I pointed out, the major problem with Santa Fe’s increased minimum wage is that it is tied to the cost of living index. In early 2013, the wage in Santa Fe is set to go up again and it will not go down, even though the index declined during the 2008-2009 recession.

In fact, the Santa Fe New Mexican noted the problem in a Sept. 1 editorial, “to ensure that the living wage is helping those it is designed to help and that small businesses are not suffering, the city of Santa Fe should take wages off automatic pilot.”

This is the future for Albuquerque if the minimum wage proponents are successful. You will see businesses close, people will lose their jobs and gross receipt tax collections will fall, which will lead to reduced city services.

The best way to increase wages is to focus on job creation and preparing the workforce to fill the positions that are available not to add additional mandates on companies that are already struggling to survive.

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