A rally for two bills to raise the minimum wage to $15 for some Connecticut companies, or subject them to a punitive tax, was held at the Capitol this week on Wednesday–ironically, Tax Day. 

Also ironic is that the rally came on the heels of a study noting that Connecticut is the best state in the country for wages--with the fewest number of workers earning less than $15 per hour.

HB 6791 affects businesses with 250 or more employees, or the small, locally owned franchisees that are part of a larger franchisor organization whose Connecticut franchisees' collectively have 250 employees.

SB 1044 impacts businesses with 500 or more employees, as well as franchisees with a collective 500 or more employees.

Some say the bills apply only to large corporations, but that’s not true because most franchise agreements require local franchisees to pay all local taxes.

Yet state lawmakers are paying special attention to the proposals because the nonpartisan Office of Fiscal Analysis says the job penalty tax imposed by both bills would result in $152 million in new state revenue in their first year, and more than $300 million each year thereafter, a total of nearly a half-billion dollars.

The Seattle Lesson

Anticipating the impact of a mandated $15 minimum wage can be seen by looking at what’s happening in Seattle, Washington.

Seattle’s phased-in minimum wage increase started on April 1 and will result in a $15 minimum wage for large businesses by 2017 and small businesses by 2019.

Math Problem

Like Connecticut, Seattle is known as a high-wage, high-cost area. Restaurants usually have a budget breakdown of about 36% for labor, 30% for food costs, and 30% for all other operational costs. That leaves 4% for profit margin.

“It’s not a political problem; it’s a math problem,” said Anthony Anton, president and CEO of the Washington Restaurant Association in  the Seattle Magazine article, Why Are So Many Seattle Restaurants Closing Lately?

“When labor costs shoot up to 42%, something has to give," said Anton.

Many Seattle restaurants made the choice to leave the city to escape the mandated $15 minimum wage. It’s simple economics that when forced to raise the price on your product or service, people will begin to look elsewhere for less expensive alternatives.

#fleefrom15

It's a phenomenon called #Fleefrom15. And it could happen in Connecticut--especially given our state's small size, the fact we are surrounded by three states, and the continued growth of online markets.

Not just restaurants are being impacted in Seattle.

Asked about the new wage law, an employee of a Seattle hotel said, "It sounds good, but it’s not good.  I lost my 401(k), health insurance, paid holiday and vacation. No more free food (the hotel used to offer free meals to staff prior to the law taking effect). Also, I have to pay for parking.”

More often than not, job creators will be forced to reduce some other benefit to keep their business profitable. Which means the law will end up hurting the people it’s supposed to help.

Connecticut should #Fleefrom15.

For more information, contact CBIA’s Eric Gjede at 860.244.1931 | eric.gjede@cbia.com | @egjede