Editors' pick: Originally published Feb. 7.
Several minimum wage increases across the U.S. became effective at the beginning of the year, with many cities enacting their own hikes. Workers rejoiced, but there's been a major bone of contention: businesses who have placed the burden of their more expensive labor costs on their customers.
The tension has bubbled up in areas where the wage increases have appeared. For example Seattle, where minimum wage became $15 an hour as of January 1, has businesses passing the buck to consumers.
After eating breakfast at the W Hotel on 4th Avenue in Seattle on January 31, venture capitalist Nick Hanauer expressed his outrage, stating on his Facebook post, "That's the last time we'll be staying at a W Hotels Worldwide. Why isn't the CEO's bonus on the bill as a surcharge? What sociopaths."
The photo showed a receipt with information that another fee had been included, stating "a 6.5% surcharge has been added to help offset the cost of the Seattle minimum wage. This is not for services provided and is not paid directly to service staff."
Bruce Hicks, a Marriott (MAR - Get Report) representative, said on January 31 that the surcharge was eliminated when TheStreet inquired about the extra fee. He stated in an email that at the W Seattle, "like many other Seattle businesses, we had a surcharge due to the minimum wage increase requirement of the city. After a recent review of that policy, we decided to end the surcharge."
When questioned about the timing of the elimination of the fee, Hicks said, "It is in the process now."
Many other consumers displayed their displeasure with the hotel chain's charge, including Adam J. Cain, who wrote in response to Hanauer's Facebook post that "this is also to try to turn public opinion against the $15/hr minimum wage. It is thumbing their nose at the consumer as a way to say, 'See, we'll pass the cost onto you, so vote against a minimum wage increase.'"
A company with a large amount of market power could get away from passing on "some of the increase onto consumers," said Michael Davis, an economics and finance professor at Southern Methodist University's Cox School of Business in Dallas.
"The real concern is that the increase in the minimum wage will lead firms to substitute more skilled workers and better technology for the efforts of less skilled minimum wage workers," he said.
Employees in many other locales are earning above the federal minimum wage because of new laws from cities and states, ranging from Washington, D.C., Los Angeles to New York state, Drew DeSilver, a senior writer at Pew Research Center, said in an article.
Many groups such as labor organizations have stressed the importance of increasing wages to $15 an hour federally, and public sentiment is largely in favor of it. An August 2016 Pew Research Center survey found that while 52% of people agreed with increasing the federal minimum to $15 an hour, 82% of Hillary Clinton supporters favored the rise while only 21% supporters of President Donald Trump backed it.
The increase in the federal minimum wage was supported by 89% of blacks, 71% of Hispanics, but only 44% of whites, widening the gap on a racial level.
The federal minimum wage of $7.25 per hour has "lost 9.6% of its purchasing power to inflation," DeSilver, wrote.
The higher minimums passed by 29 states along with the District of Columbia and nearly two dozen cities and counties include a minimum of $7.50 in New Mexico to $11.50 in D.C., according to the U.S. Department of Labor's Wage and Hour Division. These states encompass 61% of the working-age or employees who are 16 and older population, according to the Pew Research's analysis of U.S. Census Bureau data. Chicago will increase the hourly rate to $13 by 2019, and San Diego will boost its rate to $11.50 by 2017, according to the National Employment Law Project, Drew DeSilver, a senior writer at Pew Research Center, wrote in an analysis. These cities are part of a nationwide trend which have focused on the benefits of increasing minimum wages since the federal minimum wage has not changed from $7.25 an hour since 2009.
Another group of 20.6 million people or 30% of all hourly, non-self-employed workers 18 and older are known as "near-minimum-wage" workers who earn over the minimum wage in their state but under $10.10 an hour, DeSilver said. An analysis of microdata from the Current Population Survey found that under 50% of them are 30 years old or younger, 76% are white and 54% are female with the majority or 56% have not obtained more than a high school degree and this group "would benefit if the federal minimum is raised" to $15, he wrote.
Consumers are most likely to bear the brunt of additional hikes as more cities and states will adopt this practice of raising the minimum wage, said Steven Gutierrez, a labor employment partner at Holland & Hart, Denver-based law firm.
"I like the widespread use of more states and cities taking their own measures to raise rates," he said. "The federal minimum wage is too low and it has not been amended with any frequency. It is appropriate for cities and states to take the issue into their own hands."
If the ceiling for minimum wage rates wind up being too high in certain cities or a particular market, then it could eliminate the mom and pop stores, giving large companies less competition, Gutierrez said.