President Barack Obama’s proposal to raise the federal minimum wage to $9 an hour would inflate labor costs in Maine, which relies heavily on service-sector jobs, many of which start at minimum wage, to fuel the state’s biggest industry — tourism.
The move, which Obama brought up Tuesday during his State of the Union address, is opposed by many small business owners and business associations, which argue that raising the minimum wage would discourage employers from hiring more workers and would force them to pass the costs on to consumers.
Still, the benefit of higher wages could give the state’s economy an overall boost, as people earn more money to spend on goods and services and the gap between the highest and lowest wage-earners begins to close, some economists said.
“Raising the minimum wage to $9 an hour would be a boost (to) the economy that is still recovering and put money in the pockets of families that are struggling. People will still be struggling to meet basic needs at $9 an hour,” said Joel Johnson, a policy analyst at the Maine Center for Economic Policy.
Maine’s minimum wage of $7.50 an hour is already higher than the current federal minimum wage of $7.25 an hour. Full-time minimum-wage workers in Maine earn $300 a week, or about $15,600 a year, based on eight-hour days and a 260-day work year. Per-capita income in Maine was $26,195 a year in 2011, while the federal poverty level for 2012 was $23,050 for a family of four.
About 20 percent of Maine workers are employed in traditionally low-paying sectors such as food service, personal care and retail sales. According to the Bureau of Labor Statistics, 14,000 Mainers earned wages at or below the federal minimum wage in 2011. Employees who receive tips, such as waiters, often earn less than minimum wage.
“Raising the minimum wage would be a tremendous boost for those people,” Johnson said.
Opponents of Obama’s proposal argue that increasing the federal rate to $9 an hour would keep employers from hiring more workers.
“It hurts the people they intend to help. The minimum wage allows us to hire entry-level workers, such as students looking for their first job, who need training. It makes it difficult to hire them if they aren’t providing value,” said Jake Wolterbeek, owner of Jake’s Seafood in Wells. “Any employee now making $9 will probably need to get a raise. There will be a ripple effect all through the whole pay scale.”
Jake’s Seafood employs about 10 to 12 employees year-round and scales up to about 35 workers in the summer.
“We’ve got kids coming back here every summer for a job, and it would kill me to tell anyone that I couldn’t hire them back,” Wolterbeek said. “Plus, what does any business do when costs go up? You raise prices, and that’s not good for anyone.”
Dick Grotton, president and chief executive of the Maine Restaurant Association, said every 50-cent-per-hour increase in wages costs the average restaurant $12,000 to $15,000 a year in additional labor expenses. Restaurants will be forced to raise prices to offset higher employee expenses, he said.
“You can’t pay someone $9 an hour to scoop ice cream unless you want to pay $6 for an ice cream cone,” Grotton said.
Not all employers oppose increasing the minimum wage. The last federal minimum wage increase was signed into law by President George W. Bush, when it increased from $5.15 to $7.25 in a three-step process between 2007 and 2009.
“Raising the minimum wage doesn’t necessarily mean we’d cut anyone’s hours or job,” said Colleen Callahan, a manager at Kamasouptra in Portland. “Personally, I think it’s a good thing. I think it should be $12 an hour. You can’t do anything on minimum wage.”
Callahan said the hike probably would not hurt Kamasouptra, because many of its workers already make close to $9 an hour, though not all of them do.
The Maine Innkeepers Association said it opposes any increase in the minimum wage, arguing that it would cause wage inflation throughout the system and prompt other workers to demand higher wages, said Greg Dugal, executive director of the Maine Innkeepers Association.
Some businesses might be forced to hire fewer workers or pay existing workers overtime rather adding to their labor force, Grotton said.
There’s little proof to support those fears, economists said.
A major 1994 study by labor economists David Card and Alan Krueger found that a rise in New Jersey’s minimum wage did not reduce employment levels in the fast-food industry. Krueger is chairman of the White House Council of Economic Advisers.
Unions also voiced support for Obama’s proposal.
“A sure-fire way to rebuild our economy and spur job creation is to put more money in people’s pockets by raising and indexing the minimum wage,” said Maine AFL-CIO President Don Berry in a statement. “The Maine AFL-CIO applauds this move by the President and fully supports raising the minimum wage and tying it to the cost of living, which will to jump start our economy and improve the lives of millions of hard working women and men.”