Bellingham businesses adjust to state minimum wage increase

By Emily Hamann
The Bellingham Business Journal

As Washingtonians celebrated New Year’s Eve, some workers throughout the state were getting a pay raise at the stroke of midnight.

Because of a voter-backed initiative, at the beginning of the 2017 the legal minimum wage rose more than $1.50 for every adult worker in the state. Almost immediately, some local businesses felt a negative impact, while others look forward to increased profits. Ultimately, businesses can’t predict what will happen in the long term, as they’re still waiting to see the effects of Seattle’s own minimum wage hike two years ago.

Voters passed the initiative this November. It required the minimum wage to climb from $9.47 to $11 an hour in 2017. It will keep going up, too — by 2020 the law says the minimum wage has to reach $13.50. Workers under the age of 15 only have to be paid 85 percent of the minimum wage, which for now means $9.35. The law also requires employers to provide workers with paid sick leave starting in 2018.

Whatcom County and Bellingham don’t have a separate, higher minimum wage, so employees here saw their pay rise to $11 an hour.

According to MIT’s living wage calculator, a single adult living in Whatcom County needs to make $10.28 an hour working full time to afford basic expenses. For a single parent with a child, however, that goes up to $23.05 an hour.

Kylan Wood works for minimum wage as a barista at Woods Coffee. She says she was making enough money to pay all her expenses even before the wage increase. But now she has big plans for the extra dollars she’s bringing home.

“I’m going to save it,” she said. Then, she plans on doing some traveling. “My dream has always been to go to France.”

In general, Wood was actually against the law.

“I just think that it was a drastic change,” she said. “It was literally overnight.”

She predicts that it’s just going to cause price increases, and more uncertainty for businesses and workers. While no one at Woods was laid off, Wood said she was worried about that.

“We were all a little concerned,” she said.

Seattle, the test case

To the south, there exists a living experiment on what happens when the minimum wage goes up dramatically.

In 2014, Seattle voters passed that city’s minimum wage increase, which mandates that employers must pay workers a minimum of $15 an hour by 2020. That increase is more gradual for smaller employers — large employers must start paying $15 later this year.

The University of Washington’s Evans School of Public Policy & Governance has been studying the effects of the law since it went into effect in 2015.

One of the most recent updates to the study was released in July 2016. So far it has found a slight reduction in employment for low wage workers — that’s assumed to be hours that have been cut, Mark Long, a professor of public policy and governance at UW, said.

The study found no effect on business closures, and only a slight increase in worker earnings — about $10 more a week for the average low-wage worker.

Of course, there are differences between raising the wages in one city versus the whole state.

Since there’s more workers being affected, the statewide increase could have magnified effects, Long said. Also, there’s less possibility of businesses moving away simply to avoid paying the higher wage.

“It’s harder for a business to move out of a state than it is to move just outside of a city boundary,” he said.

However, Seattle currently is enjoying a booming economy — new businesses are springing up regardless of the wage, and an affluent population in the city will probably be willing and able to pay the extra cost if some businesses have to raise prices.

Areas in the rest of the state, particularly ones that aren’t doing so well already, might be less able to absorb the costs.

How local businesses cope

At the beginning of the year, signs appeared in the windows of Cool Beans coffee stands, explaining to customers that the price of a cup of coffee was going to up, to accommodate for the higher minimum wage.

“We have really no other option,” Jeremy Hawkinson said. He and his wife own Cool Beans, which has three coffee stands in Bellingham. “With this wage increase it’s really going to cut into our costs.”

Hawkinson said they already run their business as efficiently as possible. There’s no where else to get the extra money from.

“In our business, we have rent, we have cost of goods and we have wages.” He said. “Wages go up, that’s the only place to make adjustments is in the price we charge people.”

He and his wife do all the administration. They have 11 employees — all baristas, all making minimum wage.

They raised prices 5-6 percent on all products, or about 25 cents per coffee drink. That was just an initial increase; Hawkinson said they may have to raise prices even more if his suppliers are also forced to raise their prices.

“That’s kind of the trickle effect of our wage increase,” he said. “Everything is going to go up.”

He hopes his customers will understand. There’s only so much he can raise prices, though, before he starts to lose them.

“Coffee’s just one of those businesses that people like to have,” he said. “At some point, you raise the prices so much, people may make the decision that that’s something they can cut out of their life.”

Larger coffee shops felt the same impact. Lynden-based Woods Coffee has 250 employees, although most of them make more than minimum wage — only entry level-employees very new to the company make the minimum wage.

However, when entry-level employees got a wage increase on Jan. 1, CEO Wes Herman decided to give some of his other employees pay increases as well — he adjusted the pay scale for all employees based on $11 as the new starting wage.

Employees who have been at the company longer expect to make more than those who just started, he said. To make up for that, Woods also raised the price of its drinks on the first of the year.

“We’re an extremely lean company as it is,” Herman said. “It wasn’t like there was lot of places for us to find cost savings.”

He said it was challenging having to rush to implement a $1.53 wage hike with just a few months notice.

“We’ve seen incremental increases over time,” he said. “Now when we see a sudden jump in the minimum wage, it is difficult to plan for.”

He said ultimately, if everybody has to raise their prices, the minimum wage doesn’t actually do workers any good. And consumers are the ones who have to pay higher prices.

Some companies in other industries seemed to fare better.

The Community Food Co-op got a dry run at paying its employees more at the beginning of 2016, when it raised its entry level wage to $11. The Co-op almost always pays people more than the state requires.

“One of our commitments is to pay people as well as we can, given the constraints of running a profitable business,” Co-op General Manager Jim Ashby said. “We look for ways to pay people as much as possible.”

Of its 240 employees, about 30 are making $11.

“This is the first time in quite a few years we actually have workers at the state minimum wage,” Ashby said. The Co-op pays for its regular wage increases by flattening its pay scale — now a new employee has to work more hours before moving into the next pay grade.

So far, that has been enough to make up for the extra labor costs. Ashby said he thinks that strategy will be enough to pay for all the state-mandated wage increases, up to $13.50 by 2020. If it’s not enough, though, he said the Co-op will probably look at adjusting employee benefits, which include health care, sick leave and vacation time, but also a number of incentives for things like taking alternative transportation to work.

Ashby doesn’t expect every company will be able to raise its wage so easily.

“As a cooperative, as a community-owned business, we don’t have to generate value for an owner,” he said. “That’s a position that a lot of other business aren’t in.”

Overall, though, he does believe in a higher minimum wage.

“We think that the way labor is treated in the economy doesn’t pay people enough,” he said. The new wage will “push other people closer to our philosophy.”

He doesn’t really expect the higher wage will affect the Co-op that much.

“But it’s going to help the economy overall, I believe,” he said.

A block away, at Aslan Brewing, CEO Jack Lamb has higher hopes for the new wage laws.

Aslan Brewing employs around 70 people, about 15 of those — all in the restaurant — work for minimum wage.

Lamb said paying them more will ultimately be a good thing for his company — and everybody else’s.

The employees making minimum wage all work in the restaurant, doing jobs like serving, bussing tables and washing tables.

“It’s a pretty good gig now that they’re making $11 an hour,” Lamb said. “It’s going to reduce turnover.”

He said in the brewery business, profit margins are high enough that it can absorb the extra cost of labor.

Lamb also decided not to adjust the pay scale for the rest of his employees.

That has the potential for conflict, when an entry-level gets a raise to be making the same amount that someone else worked to earn.

“I sat my whole staff down over two days and explained to every single one of them that this was a change in the community, this was not a reflection of their hard work,” he said. “That was difficult for some people to understand, but I think at least in our company, everyone walked away happy.”

Lamb explained to his employees that those with seniority get benefits beyond which level in the pay scale they are on, when it comes to things like promotions or who gets to take a certain night off.

In the long run, Lamb says the higher minimum wage will help all businesses, since low-wage workers will have more money in their pocket to spend.

“I’m a believer in economics, I’m a believer in equilibrium, I’m a believer in purchasing power,” he said.

“If you raise the standard of living, more people can put that back into the economy.”

Maybe people will be able to skip the ramen one night, he said, and come eat dinner at Aslan.

“What’s going to happen is spending, and investing, and that’s what we want to see.”


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