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New minimum wage brings out the economist in employers as they grapple with how to pay for the increases

TRIBUNE PHOTO MICHAELA BANCUD - Sarah Shaoul, who owns Black Wagon, a childrens clothing store on N. Mississippi Avenue, served on the City of Portlands Small Business Advisory Council from 2009-2014. Legislators really don't understand how small business works, she says, and the wage increase timing hurts.

Two out of every five Oregon jobs pay less than $15.00 per hour and could potentially be affected by the minimum wage bill just signed by the governor, according to a recent report by Oregon's Employment Department.

The Legislature's decision to raise Oregon's minimum wage over six years to $14.75 an hour will heavily affect Portland small businesses and their wage earners.

According to the report, "Small employers might be more affected by the increase than larger employers. Firms with between 5 and 49 employees have the highest concentration of jobs paying between $9.26 and $13.49 an hour, at more than 30%. The share of these jobs at the state's largest employers (500-plus) is about 22%."

Regional economist Amy Vander Vliet explains the data, and says that the state estimates that more than 203,000 jobs in Oregon will receive an hourly wage increase on July 1, 2016, when the first bump of the new minimum wage takes effect. That will raise the minimum wage in the Portland area to $9.75 an hour.

In the third tier of Senate Bill 1532 (that's us, the Portland area) about 83,000 jobs paid less than $9.75 and are potentially affected by the July 2016 increase. Vander Vliet's colleague Nick Beleiciks is the report's primary author.

The Business Tribune asked a few Portland businesses how the new law would change how they operate.

15 is the new 10

Five percent of Oregon workers in 2015 worked at or below the minimum wage of $9.25, but most business owners the Tribune spoke to already pay an hourly rate over Oregon's current minimum wage. People like Sarah Shaoul, who owns Black Wagon, a children's clothing store on North Mississippi Avenue for fashion-forward parents and their progeny.

"I start them higher than minimum wage," says Shaoul, who employs six people. "It's really tough. I think all my employees should get paid more than they do, but there's the reality out there."

The minimum wage in Oregon is adjusted annually to account for inflation. The national minimum wage is stuck at $7.25 per hour and was last increased in 2009.

Economist Vander Vliet provides more context.

"Oregon's 2016 minimum wage is the eighth-highest state minimum," she notes. "Oregon had the second-highest minimum wage in the nation for years, behind Washington State, but that changed in 2016."

"Low-wage jobs are concentrated in food service, retail, recreational, and office occupations and in the leisure and hospitality, retail, and natural resource industries," says Vander Vliet. The impact of increases in the minimum wage would vary by location, she says.

Buffeted on several fronts

Shaoul has spent over twenty years in retail apparel. Her first business, Retread Threads, was located on Southwest Oak Street across from Powell's City of Books, on a block that long served as a sanctuary for independent businesses. Rising rents changed that. Retail market forces changed everything else, says Shaoul.

"Legislators really don't understand how small business works," she says, and the wage increase timing hurts. "A bunch of us just made it through the recession," she says. "Three small business owners I know rent their homes. I am worried for them."

Portland has a reputation of being unfriendly toward business. Shaoul says ignorance is a better description. "The City Council thinks that if you own a business you have wealth, but that's a big misconception. It's time to start making Intel pay more taxes and stop looking at us little guys."

"The 'micropreneur' model, where people work without any employees, don't pay rent, and there's no job creation," hurts brick and mortar and the economy by extension, she says. "Between that and Amazon, it's killing us," Shaoul says.

It works like this. "Customers might admire the European brands we carry at Black Wagon and then find out how to get these brands themselves, and start selling them," explains Shaoul. "When their kid is napping, they can head to the basement and start packing orders."

Shaoul served on the City of Portland's Small Business Advisory Council from 2009-2014.

TRIBUNE PHOTO JOSEPH GALLIVAN  - Kooroush Shearan says he will have to increase his prices to pay his staff the new minimum wage (rising to  $14.75 an hour in 2022) and that they won't really benefit because the price of everything will go up anyway.

Blaming the governor

Kooroush Shearan is the owner and chef at Piattino, an Italian restaurant at 1140 N.W. Everett St. in the Pearl District. He's unhappy about the hike in minimum wage, and fearful of the consequences.

"How would you feel if the strawberries you buy for $6, now you have to pay $9? Obviously you're going to ask for more money. Everything's going to go up: rent, food, everything."

Piattino has 10 full- and part-time staff. They start at $11 an hour.

Would he take some of their tips to reclaim some of the money? "No. But you can cut back on their hours, and the rest will have to work harder."

He says $15 an hour plus tips could come to $40 or $45 an hour. "Then utilities will go up, because people who work in the office at the electricity company will compare their wages to a waiter and demand more money."

He says the extra $3 won't come out of his pocket; it will have to come out of the customer's pocket. "And remember the 7 percent Social Security tax you pay and the workers comp, and the payroll fee," he says, listing off a business owner's hidden expenses.

"Everything's going to go up. We should thank the governor for what she's done."

Pricier coffee looms

Across the street is Caffe Umbria, a stylish Italian cafe co-owned by Pasquale Madeddu. His 12 staff start at $9.25. Most are on $10 an hour plus tips, which they share. He estimates they make an average of $15 an hour.

Madeddu is certain he will have to raise prices to get to $14.75. "We will move everybody up (in wages) but it's inevitable coffee, pastries and food will go up."

A $2 shot of espresso will go up to at least $2.50.

"I don't know where we are going to be in three years. The only hope is I see, eventually we should be able to get more mature people, more professional, not just kids coming out of school." He doesn't think it will ever be like Europe, where barista is a career and restaurant staff rely on salaries, not tips.

Madeddu is one of the founders of Torrefazione Italia, which was an espresso pioneer on Northwest 23rd Avenue and was bought out by Starbucks. There are Caffe Umbrias in Seattle too, where they are looking at even faster wage hikes to $15. Right now they are studying what to do. They price items with Oracle's MICROS software, a point of sale program. It looks at what's selling well, and it also calculates how long staff worked when they clock in and out.

"The first thing, for sure, is going to be raising the price. Everything by at least 50 cents."

TRIBUNE PHOTO JOSEPH GALLIVAN  - Caffe Umbria co-owner Pasquale Mededdu will put his prices up to pay for his staff's leap from $11 an hour (plus tips) to $14.75 by 2022.

Higher prices a stretch for consumers

Tommy Speigner opened his small business, Howl 'n Growl, on Northwest Front Avenue last July, hoping to stake a claim in a developing area where apartment buildings are rising all around it.

Speigner's business specializes in beer and coffee sold on site, and beer served in growlers to go. Since he opened, the nearby New Seasons and Stadium Fred Meyer grocery stores have added similar growler filling stations, and the Pearl Safeway has one under construction.

"The regulations, taxes, and burden seem to fall on small business more than the mid- to large-sized businesses," says Speigner, who moved to Portland from Atlanta with his wife Krista.

"I've been surprised by the lack of income in Portland," he says. "Most people I meet are in the $20-$30K range. There's this idea that all the people moving here have a lot of money but the renters here have little extra income."

The new minimum wage increase won't affect him for now. He just hired his first employee at $9.50 an hour and he doesn't pay himself. He needs two people on staff to run his business, usually himself and his wife working the taps. They've taken one day off work together so far.

"If I paid my new employee $14.75 an hour now, it would be a pinch," he says. "I'd work more and she'd work less."

IKEA won't raise prices

In January, IKEA moved the minimum wage at its Portland store from $9.56 to $11.25. Alessandra Zini, IKEA Portland Store Manager, said in an email:

"We are totally supportive of this development in our state and we were heading in this direction anyway ... Fair wages and a strong compensation and benefit offer are not just good for co-workers; they are also good for our business. Ensuring a great work environment is essential for our success. It's especially important as we are anticipating growth and expansion in the US."

Zini said the store has hired 30 new people since the raise and has reduced staff turnover. "Each new co-worker that we bring into IKEA costs us thousands of dollars, so lower co-worker turnover is good for our bottom line. Will our prices go up as a result of the minimum wage increase? The simple answer is no."

It's the economists …

Joe Cortright, the president and principal economist for Impresa Consulting, will tell you up front that no one really knows what's going to happen as a result of the minimum wage increase. Will it trigger unemployment, as bosses decide they can't afford their most basic laborers?

"Modest raises have no impact on employment," he says. "The question is, where is the threshold?"

He does think that having four years until the highest rate kicks in gives businesses enough time to plan and react.

"I think a lot of employers will use workers more efficiently, give them better training, organize their work differently. They've got to get $14.75 out of them." Higher wages should reduce staff turnover and thus save money on training. And employers are already being more efficient where they can, for example installing tablets in casual restaurants for ordering food. "We're used to ATMs now. Tellers do more than just count money now."

Cortright says the fact that Oregon has had a relatively high minimum for several years, and has 4.4 percent unemployment, is a good sign. "We have very robust growth, so right now I don't think it would be an impediment."

He adds that people who earn it will spend it and stimulate the local economy. "Higher wages are not magic but there is a feedback loop."

Tom Potiowsky, director of the Northwest Economic Research Center at Portland State University, says employers in competitive fields will have to decide whether to pass the new cost forward — by raising prices — or back, by cutting staff or benefits.

One problem could be healthcare providers who are paid by Medicare, which might not be able to raise its rates willy nilly.

Potiowsky says the new rate might affect who cuts the grass at Intel or the catering at a Nike party, but the economy isn't going to fall off a cliff.

"I think it should be raised, and the gradual increase is a good idea, but I don't think it should go to where it is going ($14.75)."

The Portland Business Alliance opposed the increase, although they preferred it at state level than at a local level or through the ballot.

Sandra McDonough, the PBA's president and CEO, said in a statement:

"We remain concerned that the bill did not include incentives for training, which could have negative impacts on young people and other vulnerable populations. We hope this issue, as well as potential adverse impacts unique to Oregon's rural economy, will be on the table in the 2017 legislative session."

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