Business Monday

Is an increase in minimum wage the solution to income inequality?

Yasir Billoo is a partner at Golden and Grimes LLP.
Yasir Billoo is a partner at Golden and Grimes LLP.

On Jan. 1, 20 states raised their minimum wage.

Workers in Massachusetts received the highest increase with rates increasing $1 per hour, from $8 to $9 while the Florida minimum wage rose 12 cents, up from $7.93 to $8.05. The minimum wage in California increased to $9. Municipalities, including Los Angeles and San Francisco, hiked up their wage floors, with the anticipation of increasing the minimum wage to $15 in the next few years. And many businesses including Wal-Mart have announced have announced across-the-board increases for entry-level employees.

We have not seen a minimum wage increase this dramatic before. So the question is what effect it will have on our economy, both nationally and in South Florida?

Chipotle, the burrito chain, has recently raised prices as much as 14 percent, in San Francisco, corresponding to the 14 percent minimum wage increase that went into effect on May 1. So while Chipotle workers received an instant hike in salary, it is their customers who are bearing the burden of the minimum wage increase. Though Los Angeles and Seattle recently raised the minimum wage as well, so far Chipotle has not raised prices in those cities. The jury is still out on that one.

As a South Florida lawyer who regularly represents small businesses, such as restaurants and gas stations, the practice of raising prices to match costs, particularly in the franchise world, is understandable. Though small business owners realize they are essential to the local economy, their ultimate goal is to cut costs and increase profits. As a franchise owner, there is a scale for doing business, with many fixed costs set by the parent company including prices, hours of operation and ingredient vendors. The one item franchise owners can control is wages. But if the state mandates a sharp increase in the minimum wage, the only way for them to survive is if the corporate entity allows them to raise prices. It’s vicious cycle with the consumer as the recipient of the raise as well as the price increase.

If prices are tied to minimum wage increase, who is really the beneficiary?

If price increases match wage increases, then this new legislation was all for naught. However, if wage increases rise gradually, with price increases lagging by a small margin, then workers will see the value of the increase in their paycheck. The gradual increase will not jolt the marketplace, thereby limiting a matching price increase. So, for example, if the minimum wage increase is 10 percent but price increases are 6 percent, then it is more of a win-win situation.

I support an incremental minimum wage increase. But to truly make it a win-win proposition, it is also important to enact legislation that differentiates between workers who need the increase for a living wage, for example to support their families, as opposed to the high school students who work for minimum wage as a supplement.

Travel, tourism and hospitality are main industries in South Florida, so we are particularly vulnerable to this distinction. With the 2015 Florida minimum wage at $8.05 per hour and $5.03 for tipped employees, it is impossible for an entry-level employee to be self-supporting. Rep. Alcee Hastings wants a referendum on the ballot next year to increase Florida’s minimum wage to $12.50 an hour, a 55 percent increase. But can our businesses afford the mandatory change in wages? Or will they just hire a minimum of employees and work longer hours to scrape out a profit?

This is the struggle South Florida businesses are facing. While we are committed to our employees, we need to weigh both the economics and our personal ties and create a working solution to combat income inequality.

Yasir Billoo is a partner at Golden and Grimes in Miami.