Business groups are pressuring Democratic officials in several states to postpone planned minimum-wage increases, arguing that embattled businesses can’t afford to give workers a raise as they face the coronavirus-related economic crisis.
Virginia, California, Illinois, Michigan and Massachusetts are among the states where small-business advocates and groups representing restaurants, hotels and other industries are urging delays in wage increases agreed to before the outbreak, and its related business shutdowns, began.
They’ve had some success, even in states governed by Democrats, showing how fundamentally altered political thinking has become, and how rapidly, as a result of the pandemic-driven downturn. Delaying wage increases, even temporarily, would be a pullback in a long, intensive campaign by progressives to force companies to pay the lowest-compensated workers more.
In Virginia, the General Assembly voted this month to approve a four-month delay, to May 2021 from January, in raising the state’s minimum wage to $9.50 an hour from $7.25.
“While I want to make sure we’re taking care of our workers across Virginia, I also want to make sure we come out of this economic crisis in as strong a position as I can,” said Democratic Governor Ralph Northam.
Many low-wage jobs, such as those in health care and food services, are also considered essential. That means people who hold the positions risk getting sick or infecting others by being unable to practice social distancing in the workplace, or to work from home. And those who lost their jobs during the lockdowns will have more debts when companies start hiring again.
Even in liberal California, local governments are listening to the chambers of commerce and business owners who’ve long resisted minimum-wage hikes by saying it will reduce the number of people they can hire.
Hayward, a city near San Francisco, is postponing a planned increase, and officials in nearby Fremont and Alameda are weighing similar measures. Business groups have urged California Governor Gavin Newsom to push off a statewide wage increase scheduled for January.
Four years ago, during the long economic expansion, California and New York approved gradual increases in state-mandated minimum wages. Other states followed, and now 29 states and the District of Columbia require their minimum wage to be higher than the federal minimum of $7.25 an hour, which has been in place since July 2009. In many states, automatic increases will continue pushing the minimum wage higher in coming years.
As stay-at-home orders starve many businesses of revenue, groups representing those sectors are reviving the arguments many made opposing the schedule of required wage increases wherever they can.
“Small businesses in California and across the nation are frightened, fragile and uncertain about what tomorrow will bring, let alone the next 12 months,” said John Kabateck, California director for the National Federation of Independent Business. “These types of cost increases during a time like this forces small-business owners to draw from what they don’t have.”
In Virginia, the minimum wage was scheduled to rise to $9.50 in January, followed by gradual increases lifting it to $12 an hour by 2023. The legislature’s approval of a four-month delay doesn’t affect the schedule for additional hikes in future years. The body also approved a Northam-backed four-month delay in allowing collective bargaining by public-sector employees.
In Illinois, Democratic Governor J.B. Pritzker, a billionaire whose family owns the Hyatt hotel chain, has resisted a delay in raising the minimum wage. The requirement rose to $9.25 an hour in Illinois in January and is scheduled to increase to $10 an hour on July 1, on its way to $15 by 2025.
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“We’re all concerned that we bring this economy back to where it should be,” Pritzker said. “The truth is, I think the current conditions actually indicate more than ever before why we need to raise the minimum wage across the state. It is a very small raise.”
Labor groups say the economic fallout of the Covid-19 pandemic is placing extreme pressures on people living at or below the poverty line as unemployment has swelled to almost 20%.
“We’re vehemently opposing an effort to delay an increase that workers have been counting on in an unprecedented economic environment,” said Steve Smith, spokesman for the California Labor Federation. “The economic pressures they’re facing are unlike anything we’ve ever seen, and the last thing we want to do is take wages out of their pocket.”
California’s Newsom, a Democrat, hasn’t said whether he would support a delay in the next scheduled increase in California’s minimum wage — to $14 an hour in January for companies with at least 26 employees, and $13 an hour for those with 25 or fewer.
Grounds for Delay
The law that mandated the wage increases, negotiated and promoted by former Democratic Governor Jerry Brown, allows the state to delay them if unemployment rises and sales and tax receipts fall, or if its finance director estimates that the state budget will show a deficit.
The NFIB has asked about delaying minimum wage increases in Michigan and Massachusetts and hasn’t received definitive responses, said Tim Goodrich, the group’s executive director of state government relations.
Few dispute that widespread social distancing and stay-at-home orders will damage small businesses, especially those in the retail, tourism and restaurant sectors. A 2016 report by JP Morgan Chase & Co. found that half of all small businesses can survive for only for about 27 days without new revenue; the average restaurant has a cash buffer of 16 days and the average retail business 19 days, according to the study.
Shutting for Good
In California, the association that represents restaurants warned Newsom in March that as many of 30% of the state’s 90,000 eating establishments may permanently close without the postponement of minimum wage increases and other state aid, such as deferral of payroll taxes.
In the NFIB’s monthly national survey of small businesses, its “optimism index” showed the largest one-month drop on record in March, and the group expects the survey to show a wave of business closures in April, said Holly Wade, the organization’s director of research and policy analysis.
“The economic impact on the small-business sector is immense,” Wade said. “We won’t know the exact number of small-business closures for a while but the number will certainly be large, far bigger than what was experienced in the Great Recession, given the mandated business closures across most of the country.”
In California, the Hayward city council just two months ago approved an aggressive timetable raising the minimum wage in July to $15 an hour for companies with 26 or more employees and $14 an hour for smaller employers — 18 months before state requirements are scheduled to reach the same levels. Last month, after Covid-19 began spreading through the state, the same council voted to postpone the increases until July 2021.
“Minimum wage increases do eliminate jobs, and in a time like this, we need to preserve them,” said Hayward City Council member Sara Lamnin.
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