Minimum wage increase means higher costs for MN small businesses

By Eric Boehm | Minnesota Watchdog

MINNEAPOLIS — At Minnesota’s oldest Dairy Queen, owner Troy DeLeon frets about what a higher minimum wage would do to his business, where he has been serving customers for more than 20 years.

DeLeon sells small cones for $1.50 out of the front window of one of the few remaining old-style Dairy Queens in the country — no drive-through service or indoor dining here . He oversees a staff of about two dozen employees, mostly high school kids working their first job.

Lawmakers in St. Paul could be putting those inexpensive, old-time ice cream cones and important starter jobs at risk.

“I don’t understand why they are doing this,” DeLeon said Wednesday. “It’s taking us and other small businesses almost right out of business.”

Minnesota state lawmakers are expected to pass a bill this week to hike the state’s minimum wage to $9.50 per hour, giving the state one of the highest mandatory wages in the nation. The increases will come in three stages over the next three years, starting with a bump to $8 per hour in August, and further increases will be tied to inflation after 2018.

Democratic leaders in the state House and Senate reached a deal Monday to pass the bill, which Gov. Mark Dayton, another Democrat, is expected to sign into law. It could reach his desk before the end of the week, though the exact timeframe is somewhat uncertain.

The push for a higher minimum wage in Minnesota is being led by the same groups leading similar efforts in dozens of states — unions, progressive activists and political mercenaries. Each state-level effort helps create a national issue that Democrats are hoping to use as a populist cudgel against Republicans in this year’s crucial mid-term and gubernatorial elections.

But raising the wage has real-world consequences for Minnesota businesses.

The Minnesota Chamber of Commerce says the minimum wage increase will cause a 31 percent increase in businesses’ employee costs. The effects will be felt most strongly by small businesses and in border communities, according to the chamber.

At the Dairy Queen in Moorhead — located more than three hours from the state capital in St. Paul but only five blocks from the Red River and the border with North Dakota — DeLeon agrees with that assessment.

The minimum wage increase is a double whammy for guys like DeLeon. On top of having to pay his own employees more, it means the cost of goods will climb too.

Why? Because DeLeon’s Dairy Queen gets most of its frozen treats from warehouses in the Twin Cities. The people working in those warehouses will have to be paid more, and so will the truck-drivers who make the three-hour trip to Moorhead each week to supply the restaurant. That means the warehouse company and the trucking company will have to increase prices too, Deleon predicts.

He said the increase will be a particularly hard hit for businesses in “the outstate” — Minnesota slang for parts of the state not in the Minneapolis-St. Paul metro area — where the cost of living is lower.

“Raising the wages means increasing prices, and that might be fine for people in the cities, but outstate it’s a whole new ballgame,” Deleon said.

When fully implemented, Minnesota’s $9.50 per hour wage would be one of the highest in the country. Washington state leads the way right now, at $9.32 cents per hour, but lawmakers in Maryland and Connecticut are considering bills to require $10.10 per hour in those states. President Barack Obama has called for a $10.10 minimum wage across the country.

A wage of $9.50 per hour translates to $19,760 for a full-time worker.

Unions and activists pushing for the higher wages say it will put more money into the pockets of 357,000 Minnesota workers.

“While Minnesota’s economy is improving, there are too many Minnesotans who work hard every day but cannot make enough to make ends meet. It’s time to raise the wage and make hard work pay in Minnesota – now and into the future,” said House Speaker Paul Thissen, D-Minneapolis, in a statement announcing the agreement between the House and Senate on the minimum wage bill.

Opponents of the increase say most minimum wage workers are not relying on that job as their sole form of income, or they are young workers who will quickly move up to better jobs.

“Low-wage jobs have always been stepping stones for people just entering the workforce,” said Mike Hickey, state director of the Minnesota National Federation of Independent Businesses, which represents small business owners. “Raising the minimum wage will price some of them out of the job market and they’ll be robbed of the experience they need.”

If higher mandatory wages shut young workers out of the job market, the increase could hurt the very people it’s trying to help.

People like those who work at the Moorhead Dairy Queen, where the average employee is 17 years old.

“They’re not banking on this for a career. They aren’t supporting a family on this,” DeLeon said.

The state Department of Employment and Economic Development says about 114,000 workers in Minnesota were paid the federal minimum wage of $7.25 per hour in 2013.

By comparison, more than 460,000 workers — about 16 percent of the state’s entire workforce — were paid less than $9.50 per hour. With wages increasing for the lowest-earning workers, there will be plenty of others looking for a raise too.

Only three of Deleon’s 24 employees are making the minimum wage of $7.25 per hour. The rest make slightly more, depending on experience mostly. If the minimum wage goes up to $9.50 per hour, brand new employees will be getting paid as much as more experienced ones.

To DeLeon, that’s just not fair. He said he will have to give raises to all his employees to keep the current wage scale in place.

All of them, that is, except for DeLeon and his wife, Diane.

As co-owners of the Dairy Queen, they don’t make an hourly wage, of course. When he does the math, DeLeon comes to a sobering conclusion: his pay is probably not much better than $9.25 per hour.

Last Sunday, he worked a 16-hour day that included nearly 12 hours of serving customers at the window since his Dairy Queen has only just opened for the season and isn’t fully staffed yet. During the 42 weeks of the year that he’s open for business, DeLeon and his wife work seven days a week.

“I’d like to see any of those politicians in St. Paul work a day like that,” he said.

Boehm is a reporter for Watchdog.org and can be reached at EBoehm@Watchdog.org. Follow @EricBoehm87 and @WatchdogOrg on Twitter for more.