Wage rises, businesses squirm

The minimum hourly goes to $7.25 today

Staff WritersJuly 24, 2009 

Your Bojangles' chicken biscuit costs a little more these days. So does the sweet tea.

If it makes it easier to swallow, the prices have risen because the people behind the counter are getting paid a little more.

Starting today, the federal minimum wage goes up. That means employers must pay workers at least $7.25 an hour, up from the current $6.55. It's the second increase in the federal wage standard in two years, a move intended to help low-wage workers better afford the costs of living.

But with businesses already struggling with the economic downturn, it could actually intensify the pain. Employers could cut jobs, put off hiring, reduce hours or raise prices to contend with the wage increase amid the recession.

"We're already experiencing a decrease in sales because of the economy," said Tommy Haddock, president of Tri-Arc Food Systems, the largest franchise in Bojangles' system with locations from the Triangle to Southern Virginia. "When you have an increase in costs with a decrease in sales, it's a double whammy."

Annual expenses at Tri-Arc, which employs about 2,100 at 40 restaurants, will rise by $1.2 million because of the new minimum wage, Haddock said. The company raised prices by about 3 percent across the board to help offset, though not completely cover, the higher expense.

Tri-Arc's decision illustrates the trade-offs of the minimum wage. Economists have long debated the benefits and drawbacks of raising it, and that's no different this time.

The Economic Policy Institute, a liberal-leaning think tank in Washington, predicts that today's increase will generate $5.5 billion in additional consumer spending during the next 12 months. Meanwhile, David Neumark, a professor at the University of California at Irvine, predicts that the wage increase will kill 300,000 jobs held by young workers.

No matter the result, one thing is clear: The change will have an effect in North Carolina.

Last year an estimated 78,000 workers statewide were paid rates at or below the minimum wage, according to data from the U.S. Bureau of Labor Statistics. That's about 3.5 percent of all hourly paid workers in North Carolina.

For a full-time worker, the 70-cent increase will translate into an extra $1,456 a year. That's real money for someone trying to raise a family or just get by on $15,080 a year -- annual income for a worker earning the new minimum wage.

The timing is ideal for Ebony Meredith, who works as a cashier for Jack's Seafood on New Bern Avenue in Raleigh. She's planning to move out of her mother's house into her own place Monday. With the economy in turmoil, she welcomes the extra cash.

'Every bit counts'

"It's a bad time right now," said Meredith, 22. "If you're working for your money, every bit counts."

Employers feel the same way.

"Obviously, it would be better for small businesses if the timing was delayed," said Rob Fegley, who with his wife, Beth, owns the Rita's Water Ice franchise in Apex. "With the way the economy has dropped lately, we're already running on pretty thin margins."

The business has seven employees now, and only a couple make less than the new standard. Fegley said he hasn't done a detailed analysis, but he might have to cut a few hours a week from everyone's hours to make up for the expense of raising wages.

"I would like to be able to pay them more money. It's good for them. I think they should earn more," Fegley said. But when the minimum wage increase was approved, he said, "we weren't in the recession we're in right now."

The federal minimum wage was increased in three steps. In 2007, it rose from $5.15 an hour to $5.85; in July 2008 it moved to $6.55 an hour.

North Carolina has a separate minimum wage standard, but employers are required to pay the higher of the state or federal requirements. For that reason, employers in the state had to raise wages last year. And they have to do so again today.

Autobell, a car-wash chain based in Charlotte, starts many new employees at minimum wage. It employs 1,600 at 55 stores in North Carolina, Virginia, South Carolina and Georgia.

Carl Howard, the chief operating officer and son of the founder, estimated that the cost of payroll when averaged across all employees will increase 50 cents to 70 cents per hour worked.

"That might not sound like a lot, but in the scheme of things it's an increase," Howard said.

Offsetting the increases

To help compensate, the company is introducing new flat-rate packages that let customers get unlimited monthly washes. The prices range from $24.95 for exterior-only washes to $64.95 for cleanings that include the interior and additional options.

"We want to entice more customers to come in," Howard said.

jonathan.cox@newsobserver.com

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