Increasing Wage Facts

Soon, employers in Virginia must increase the minimum hourly wages they pay to $9.50. Over the next several years the minimum will be incrementally increased until 2026, when it will rise to $15.00. It will then increase at the rate of annual inflation. Folks have different opinions on the General Assembly’s decision to set rates businesses must pay. Here are some ways this will affect different groups.

The Way It Works

Currently, except for new hired individuals, employers are paying their employees based on a combination of their value to the business and the businesses’ ability to pay. That value may vary based on experience and responsibilities that an employee has. A business may not have any employee that is being paid at today’s minimum wage or even at the new minimum. Yet, they will be forced to give raises to be fair to their employees and to avoid what is called wage compaction. Compaction occurs when newly hired unskilled employees receive pay that is too similar to employees with experience. Likewise, good employees will expect a raise and will probably deserve one, based on their value to keep up with inflation.

Consumers

Increased payroll expenses will have to be calculated into every business’s budget. There can be no other result than for businesses to raise prices. Those price increases will be driven on how “hands-on” a business is. Because of past automation, manufacturing businesses will be impacted but not nearly as great as a restaurant or other service-oriented business will be. Thus, the cost of a widget will increase, but percentagewise not nearly as much as a hamburger. The restaurant needs someone to take the order then others to prepare and cook it. Expect the cost of that burger to rise significantly. Buying one hamburger will impact some more than others, but because every item a consumer buys will rise, it will quickly affect everyone.

For those consumers that are still working, they will probably get a raise. However, their rising income and rising cost of living expenses will balance out. The consumer that will be most impacted will be those seniors and others on fixed pensions that are locked in on retirement income where they have limited control. It may be a pension that will not change, or it may be Social Security that will be indexed for inflation with a year’s delay.

Large Retail Businesses

These are the businesses that are big enough to set the price of the items they sell. They control the market to meet their needs. Amazon is the perfect example. They are notorious for changing prices, sometimes as frequently as several times a day. Their business plan is based on sheer volume. Likewise, they rely on you, and the internet, to do much of the work involved in the transaction process. Companies that can operate on volume can compete no matter what happens elsewhere in the market. Often these businesses tell the supplier what they will pay, and the manufacturer will adjust size or quality to accommodate.

Small Retail Businesses

These are generally local, often family-owned businesses. They lack the buying clout of larger businesses. Traditionally, their success has been based on their commitment to the communities they serve. They are the businesses that contribute to needs that abound in a community. From supporting local sports programs to assisting those in need, they are there. They generally pride themselves on their relationships with their customers. These businesses will be more directly impacted by price increases. Already facing a competitive market, some will be forced out of business. Over a period of time, fewer local businesses will be part of our community.

Employees

In the short term, it appears that most employees will be the big beneficiaries of a higher state mandated wage increase. However, as I have cited above, every family will be impacted by inflation. Inflation will quickly erode the buying power of everyone. In an attempt to control prices, businesses will find new ways to control costs. For example, more restaurants will encourage customers to place their orders on computerized screens. In doing so, they will eliminate some employees. Other businesses will look for similar solutions.

Next week, I will focus on the issues that drive those who are forcing government interference in wages.

We love to hear from you! You can reach us at Sen.Ruff@verizon.net, 434-374-5129 or P.O. Box 332, Clarksville, VA 23927.