It’s been nearly a month since Amendment 70, Colorado’s new minimum wage law, took effect. The passage of the contentious proposal means the state’s base pay jumped from $8.31 per hour in 2016 to $9.30 per hour in 2017. It will increase 90 cents each year until the wage reaches $12 in 2020.
For some local business owners, the law has already changed their outlook, strategies and bottom lines for both the near and extended future.
It was 2 a.m. last November and Etienne Hardre was still awake watching election tallies come in. Of the 2.7 million total votes cast regarding Amendment 70, it passed by about 300,000.
Hardre crunched numbers and that night sent an email to employees, informing them of his new business model.
Beginning in December, Hardre raised the prices of each of his services by $4. He also raised the base pay of his two front desk employees by $1 an hour to $11 in order to preempt talks of leaving for higher pay elsewhere. But the biggest impact, he said, has been to the stylists and barbers who work on commission.
“They went from making 70 percent over minimum wage to about 6 percent over minimum wage,” Hardre said. “Some have invested up to $20,000 on their education. They invest in their own tools. And, at my shop, you need at least two years experience.
“But all off sudden you’re just making 6 percent over minimum wage?”
Despite rising overhead, Hardre said he plans to expand his 10-chair shop by five more chairs this year, but he’s concerned that as wages rise, it will be more difficult to find barbers and stylists to fill his mid-market niche.
“We hire about one in 20 barbers who apply,” he said. “And that number is going to go up to one in 50 or one in 100. It will be harder and harder to find quality people because I’m not going to be able to offer 70 percent above minimum wage anymore. That will automatically slow down my growth.”
Hardre said he raised his prices in order to keep employee commissions higher. But to totally make up for the wage compression, he said he would have to raise prices by $15.
“I can’t do that, but I think it’s incumbent upon me, as a business owner, to protect them from that loss of buying power,” Hardre said.
Service industries like Hardre’s were one sector expected to be significantly affected by the minimum wage hike — along with retail, tourism and restaurants.
Carolyn Livingston, communication director with the Colorado Restaurant Association, said the CRA was against the amendment before it passed, and that hasn’t changed.
“Once the minimum wage is up to $12 an hour, we’re quite concerned about preparing the next generation of workers for this industry,” she said. “Who will take someone with zero skills and pay them $12 an hour to train them?”
Steve Kanatzar, chairman of the board of the CRA and the owner of the Airplane Restaurant in Colorado Springs, called the law a “disservice.”
“Many people don’t realize that minimum wage is meant for unskilled labor just entering the labor force,” he said. “Those are 16- and 17-year-olds. It’s not supposed to be a living wage.
“If I graduated high school and made $24,000 a year, I could have gotten a car and an apartment. There’s no need to further your education.”
About 30 percent of those who are of working age got their first job in the restaurant business, Kanatzar said, and about 50 percent of workers have worked in a restaurant at some point.
But those numbers will dwindle, even more so with advances in technology.
“Look at large chains putting tablets on tables,” he said. “Those are meant to replace servers. They’re not there for your convenience. They wouldn’t be spending that money if they didn’t need to.”
Bob Donegan is president of Ivar’s Restaurants, a Seattle-based seafood chain that employs more than 1,000 people system-wide. The city implemented its own minimum wage law in 2015 that would ramp up to $15 an hour over a period determined by a company’s size and health care benefits. Donegan supported the hike, but Ivar restructured its tipping system (some servers were making $80,000 a year) to a service charge so underpaid kitchen employees were more properly compensated.
Donegan said some kitchen workers received as much as a $12-an-hour raise. To make up for wage increases, the company increased the cost of its products by 21 percent.
The restaurant beta tested the concept at one of its sites early on, and it proved to be successful, he said.
“Turnover has remained virtually unchanged,” Donegan said. “We haven’t seen a drop in customer counts, but we have seen a decrease in profits in the company. But we’re OK with that. This is year 79 for us, so we do things for the long-term. We’re not worried about the day-to-day, quarter-to-quarter or the year-to-year.”
The dip in the bottom line is likely a result of Seattle’s exploding restaurant scene, Donegan said.
“In Seattle proper, there are about 2,200 restaurants,” he said. “In 2016 alone, 400 new restaurants opened in the city. Revenue for restaurants is up overall — about 8 percent. But the market is growing and that’s being shared over more restaurants.”
The biggest impact the wage hike has had for Ivar’s, Donegan said, is that the company is far less likely to spend time training entry-level employees.
“When we hired people starting at minimum wage [before 2015], we’d work with them three, four, five times to train them how to do stuff. But at $15 an hour, if they don’t get it quickly; we turn them over quickly. We used to be able to work with people, but now, if they don’t get it pretty soon; they’re someone else’s problem.”
‘Trust the market’
Local restaurateur Brother Luck is shutting down his Street Eats — but not because of the wage hike.
Despite the possibility of higher overhead, Luck will be closing his existing establishment in March to order to prepare for the opening of his new downtown eatery, IV by Brother Luck, this spring.
Luck said he never needed to increase prices at Street Eats, “but going into this new space, we’ll have those conversations.”
Discussions will include the possibility of going to a service charge, he said, which would eliminate tipping. Charged funds go to the restaurant and are distributed to employees. Luck said he will also examine eliminating bussing and hosting positions.
It should be the business owner’s responsibility to take care of employees, he said. An additional hurdle is the perception among voters that restaurant owners are making hefty profits.
“The reality is, our profit margins are really low — like 3 to 5 percent,” he said.
As for the electorate, Hardre agreed.
“The voters were convinced that they were helping these people at the bottom and it’s hurting them,” Hardre said. “I had people going to technical school to improve their lot in life and they were making decent wages compared to the minimum, and they just got dropped right back down. I understand trying to help, but I wish the average voter would trust good business owners. … Trust the market. If they’re not getting paid fairly, they’ll go somewhere else.”