The executive order on minimum wage signed by President Barack Obama in February will begin increasing federal employee and contractor wages to at least $10.10 an hour, effective Jan. 1, 2015.
All new contracts initiated on or after that date with the federal government will be bound to the new rate. Based on expiration dates, it should take three to five years for all renewing agreements to be incorporated.
Few area small business and franchise owners seem to be concerned about the increase because they are not directly affected, according to several sources.
“It’s not high on the radar screen,” except for government contractors, said Kurt Haskell, director of the Yavapai College Small Business Development Center (SBDC).
Those federally contracted firms worry that “the ruling will have a negative effect on their profit margins with the economy the way it has been,” Haskell continued. “The majority of businesses in Yavapai County still – if not struggling – certainly have not come out of the recession.”
From 2000 through 2012, federal defense contracts worth nearly $43 million were awarded to 70 contractors in Yavapai County, according to www.governmentcontractswon.com, a privately registered (unidentified owner) website. Total contract values ranged from a high of nearly $7 million in 2007 to a low of about $790,000 in 2011. Sums for nine of these entities surpassed $1 million each during the 12 years, with one contractor garnering $11.2 million. In 2012, the latest year reported on the site, 34 Yavapai County contractors were awarded $3.19 million.
“Contracting is still way down,” Haskell said. “Any increase in costs for them is just going to make that profitability in the business even worse.”
One Prescott Valley government contractor impacted is Prescott Aerospace, Inc., according to President and General Manager Mike Daily. About 35 employees working in machinist, shipping and receiving, and clerical positions are affected by the wage hike, although all currently earn higher than the current state minimum.
“We typically do not pay right at the minimum wage, but we do have some entry level positions,” Daily said. “Usually, we start them at more than the minimum wage, but have not been starting them at the new [$10.10] rate.”
Twenty-one states, including Arizona, pay hourly workers more than the $7.25 federal minimum. The state’s minimum wage, increased annually as mandated by Arizona Proposition 202, passed in 2006, currently is $7.90 an hour. Increases, pinned to a formula based on the state’s Consumer Price Index, were 10 cents this year, 15 cents in 2013, 30 cents in 2012 and 10 cents in 2011. The minimum for tipped workers rose from $4.80 in 2013 to $4.90 this year.
Workers in the United States are entitled to whichever minimum – federal or state – offers them the highest wage. Current wages represent the fourth straight year that the Arizona minimum wage has surpassed the federal level, which has not changed since 2009.
Haskell, who arrived at the SBDC in September, works with some 70 clients in the Verde Valley business community. “A lot are struggling both in the Verde Valley and Prescott,” he said.
Even businesses not addressing minimum wage provisions have expressed concerns about government intervention, varying costs of living across the country, disincentives for business growth and decreased demand for entry level, non-skilled and student workers.
“It does not affect us,” said Kay Medina, owner of CK-Krill LLC, which sells lighting torch and light stick products. “Just the two of us run the business, a very small business. If we need help, we call one of the local area hiring companies and get part-time help.”
Another area business, Gunsite Academy in Paulden, has a General Services Administration (GSA) contract with the federal government, “but they come to us and contract for our business,” said Director of Marketing Jane Anne Shimizu. “We have special pricing for the federal government. I don’t know what the new rule means. Federal contractors make their own pricing. I look at that [national news] story as being a lot of hot air. We pay our employees what we want to pay.”
Shimizu, who has been with the firm for 15 years, said they have no employees at minimum wage, citing the advantages of retaining workers by paying them for value provided. A number of Gunsite’s contractors are firearms instructors who work in Iraq and Afghanistan and are compensated accordingly. The lowest pay rate at the firm is $16 per hour, Shimizu said.
“I don’t think it is the federal government’s place to tell an employer what they should pay their employees,” she said. “We pay our janitor $16 an hour. That’s why our employees stay. Pay rates should be up to the individual companies. People need to earn that excess pay,” and not automatically receive a blanket raise under federal order.
Summarizing 20 years of previous research about the minimum wage by themselves and others, authors David Neumark, professor of economics at the University of California at Irvine, and William L. Wascher, a senior associate director at the Federal Reserve Board, presented their findings in a 2008 book, “Minimum Wages,” published by The MIT Press. The authors reported that 85 percent of the studies they reviewed demonstrated job losses for less experienced teens after wages were raised.
“It’s definitely going to create a stumbling block for hiring young people,” Daily stated. “Why hire somebody right out of high school when I can basically find somebody else who has been doing some of the [same] work” and would require less guidance and training. “It’s a shame.”
A legislated increase in the minimum wage “across the board” to $10 or more nationwide would challenge all businesses with the same operational decisions, Haskell suggested. It also would “have the net impact of cutting jobs…to people who really need to get their toe in the door…students and summer job applicants more so than anyone else.
“If everyone had to pay a higher minimum wage, they all would have to figure out how to increase the costs of their products, if they [could], even by a few percentage points to cover it,” he explained. “It’s kind of leveling the playing field. Everybody has to deal with it and has dealt with it. Everybody experiencing it can pass some of the cost along to their customers. If they don’t feel they can do that, they will either pick up the slack themselves or cut employees.” QCBN
By Sue Marceau
Quad Cities Business News
Leave a Reply