Hundreds of thousands of Arizona workers got a raise Jan. 1, and small businesses, particularly restaurants, are looking at some major changes.
Last week, a Maricopa County Superior Court judge threw out a lawsuit filed by the Arizona Chamber of Commerce and Industry and other groups that could have blocked the wage increase approved by voters in November. The Arizona Supreme Court rejected Dec. 29 an injunction, which might have prevented implementation.
The groups are appealing the ruling, but as the wage hike moves forward, it will increase from $8.05 to $10 per hour, effective Jan. 1. It will then increase to $10.50 in 2018, $11 in 2019, and $12 in 2020.
Some West Valley restaurateurs voiced concern that higher costs will hurt their business.
Rose Gentry employs 14 people at her restaurant, Rosie’s Italian Café, 13930 Camino Del Sol, which has been open in Sun City West for 19 years.
All but two of her employees work part-time. As those making minimum see their hourly rates increase, those already making more than minimum will expect to get raises as well, she said.
“Those making more will want more. It’s like a domino effect,” Ms. Gentry added.
She does not plan to cut hours for her employees or the operation, but menu prices will need to rise to pay for the wage increases, she said.
“I’m going to have to increase my menu cost,” said Ms. Gentry. “Everywhere you go, prices will go up. You’re going to see a lot of business decline and close, unfortunately.”
Lazaro Gonzalez, an assistant manager at JB’s, 9889 W. Bell Road, echoed her concern.
“At the beginning of the year our prices are going up,” said Mr. Gonzalez. “We are going to have to make some change on our schedules to cut down on labor.”
Prices will go up as much as 40 percent to 50 percent on some menu items starting in January. The restaurant typically employees around 21 people, 80 percent of which currently work full-time, but some will see hours reduced, according to Mr. Gonzalez.
“We don’t know exactly how many hours we will have to cut. Right now we don’t know how bad it’s going to be,” he said.
Supporters of the minimum wage increase say it could decrease poverty and increase opportunities for working-class families, as well as increase consumption. But it remains to be seen how it could affect the region’s business community.
The Northwest Valley’s commercial core, made up of Arrowhead Towne Center, P83 Entertainment District and the Peoria Sports Complex, sits on hundreds of acres supported by low wage earners effected by the minimum wage increase.
Economist Elliott Pollack said it is questionable whether pay raises work over such a large swath. He said when minimum wages increase, a number of things can happen — prices go up, capital is substituted for labor, profits go down or more productive people are hired and less productive people are let go.
Minimum wage increases can be problematic, he said.
“It is basic Economics 101. If prices go up, there’s less demand for that good, people have less money to spend on other things. and then businesses suffer, which could lower employment,” he said. “In effect, all you are doing is transferring money around. And when wages go up, businesses might substitute capital for labor, so you could start seeing kiosks instead of employees.”
Guy Erickson, Peoria Chamber of Commerce president/CEO, said the minimum wage could especially create issues for small businesses and nonprofits. Businesses could let employees go, and see customer service suffer, which eventually hurts sales, he said.
“It doesn’t matter what it is,” Mr. Erickson said. “A manager at a clothing store has a sales staff getting paid minimum wage. That manager is given X amount of dollars and has to make it go as far as it can. If you have to pay your staff more money, you’re going to have to let people go or raise prices.”
Lea Soto Graham, manager of marketing and communications, said Goodwill of Central Arizona is devoted to helping the community by fighting unemployment through career centers for the public. The centers are free and there are at least three locations in the West Valley. Services range from developing resumes to help in applying for jobs.
“Although not specific to anyone affected by the minimum wage, our career centers provide services to whoever needs them, like interviewing techniques and access to open positions at hundreds of local companies,” she said.
In the Peoria Unified School District, 443 employees – temporary workers, groundskeepers and a number of other employees — will be affected by the increase at cost of about $100,000 to the district this year. Human Resources Administrator Carter Davidson said when wages go up to $12 per hour, it will cost the district about $2 million.
“We have a tight budget,” Mr. Davidson said. “Unfortunately, we only have one pot of money and a lot of our money is in salaries.”
With the failure of a $198 million bond in November that would have funded two new schools, improvements to existing campuses and transportation, as well as new technology, the wage increase hits the district at an inopportune time.
However, Superintendent Darwin Stiffler said he anticipates a large enough increase through inflation funding to cover some of the costs from the wage increase.
In Peoria, about 470 part-time, seasonal and temporary city employees will be affected by the minimum wage increase, with cost estimates of $95,000 the first year, $145,000 the second year and $260,000 after that.
Katie Gregory, Peoria’s management and budget director, said the increase will mainly affect part-time employees in the city’s Community Services Department, for positions such as recreation leaders, library pages and life guards.
“Revenues increase each year, but it does take away from our ability to do other things, like paying for increased contractual utility costs,” she said. “It’s not so much about what we would have to cut, but what are not going to be able to do because of the wage increase. I will say this — We contract with vendors who may also be impacted by these new wage requirements.”
In Glendale, the minimum wage requirement will affect 137 temporary employees in the district’s Community Services Department as well as the Public Facilities, Recreation and Special Events Department. Officials said impact to the budget is estimated at $116,000.
A full analysis has not yet been completed, however, the impact to the general budget is expected to be minimal and no reduction in city services is projected, officials said.