Minimum Acceptable

opad4Let’s start off by saying we are not for or against increasing the minimum wage.  That is a policy decision and the Chamber chooses to present information rather than advocating one way or another.  This is meant to be informational.

Last week the Cook County Board of Commissioners increased the minimum wage in Cook County to $10.00 an hour beginning July 1 of next year.  Thereafter, it rises one dollar on July 1 of 2018 and so on until it hits $13.00 in 2020.  This schedule puts Cook County just a year behind Chicago, where the current $10.50 minimum wage will rise to $13.00 by 2019.  Tipped employees will see their $4.95 hourly rate increase by inflation, up to 2.5% annually.

The Illinois minimum wage outside Cook is $8.25 an hour.  The federal rate is $7.25 an hour.

Many small businesses are going to have to raise their prices – especially the independent restaurants and retailers.  There is no getting around that.  Most small restaurants operate on a 3% – 5% margin, meaning that they only make three to five cents on every dollar.  A million in sales only generates a profit between $30,000 and $50,000 for the owner.  Even if you want the owner to be paid nothing, there is only 3-5% wiggle room before prices have to go up to pay for the increase.

Why? Restaurant labor costs run 30-40% of sales.  If you assume that half of the employees are paid minimum wage, the increase from $8.25 to $10.00 means that total costs rise 3-4%.  If all employees receive the same pay rate increase, total costs rise 6%-8%.  By 2020 when the wage hits $13.00 an hour, costs will have risen 9% to 23%, depending on the type of restaurant.   A nickel of profit cannot absorb more than 5% of additional costs.  Prices have to increase – or some other expense (rent, marketing, food costs, number of employees) must decrease.

This may not be the case for large, profitable, national companies or fast food.  But it is the case for our much-loved small independent mom-and-pop stores. So please, be supportive when they inevitably increase prices.  It costs more to pay people more. 

This post also appears on the Chamber’s blog on oakpark.com

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