Higher wages sound great, right? Unfortunately, a closer review shows that government mandated minimum wage laws at the local level don’t work as intended. After Seattle increased its minimum wage to $15 per hour, economists found that total payrolls declined because the increase in wages was offset by reduced hours. The proposal coming forward to city council would mandate a minimum wage of $20 per hour by 2027, putting Aurora at a distinct disadvantage. Let’s take a closer look.
The discussion of a minimum wage misses a key principal: Total compensation. Employers have expenses beyond just the base pay level of an employee – this includes 7.65% in FICA taxes (social security and Medicare), health insurance, paid time off, paid holidays and more. A business has to accrue expenses for total compensation. In other words, a $1 increase in the minimum wage means total compensation expenses go up by more than $1 per hour.
What does this mean in practice? An employer may reduce the employer paid portion of health insurance or reduce the paid time off allowance to offset for the higher cost of wages. Alternatively, they can reduce hours worked or increase prices, both of which reduce spending power for the employee.
In order to stay open, businesses of all sizes have to operate at a profit. If a business pays employees a higher level than the revenue they generate, they won’t keep their doors open for very long — that isn’t greed, that’s reality. This is especially true of small businesses that oftentimes operate on very small margins — a 5% increase in wages can hurt a small business. A 66% increase over seven years as is proposed? The impact would be devastating to small businesses in Aurora.
An analysis by city staff indicates this proposal will have a significant impact on the budget of the City of Aurora, as well. It will cost $333,000 per year just for the city to enforce an increase in the minimum wage. In addition, based on current staffing levels, it will cost at least $672,000 in increased wages over seven years. However, the number of city employees that would be impacted by an increase in the minimum wage is about one-third of the normal level, thanks to the COVID-19 pandemic (think pool lifeguards, library staff, etc).
Either way, this proposal will cost the city (i.e. taxpayers) a significant amount of money to implement. With city budgets already being slashed due to COVID-19, it could only be paid for via reduced services or increased fees. In my fiduciary responsibility to the residents of Aurora, I can’t support a proposal that will have a significant negative impact on the city budget, while also potentially reducing services to our residents — that’s irresponsible.
The impact to the restaurant industry would be particularly crippling. The Colorado Restaurant Association conducted a wage survey in July 2020 and found out the impact to Aurora restaurants after the last statewide minimum wage increase in 2016:
- 57% reduced staffing levels
- 14% reduced employee benefits
- 90% increased their menu prices
The results are clear. Aurora would be at a distinct disadvantage when compared to Centennial, Parker, Commerce City and other surrounding cities that don’t have the same government mandate. While the largest businesses can more easily handle a minimum wage increase due to economies of scale, the impacts felt by the largest employers would pale in comparison to the devastation to small business across our city. Further, most minimum wage workers aren’t head of household earners. Most are young adults between 16-24 or part time, second household earners, so any increase does little for the average family.
Rather than focus on easy political talking points like increasing a minimum wage, government leaders should be focusing on how we can stay out of the way and truly increase financial freedom and flexibility for our residents. Some ways we can accomplish that include increasing access to trade school & skilled labor programs, reducing unnecessary and burdensome costs on small businesses and partnering with our education system at all levels to ensure our young people are trained for the jobs of the 21st century.
Let’s make Aurora the best place to raise a family or run a business in Colorado, not sacrifice our competitive advantage.
Curtis Gardner is an At-Large Councilmember for the City of Aurora