Increase in wages felt here

The sun isn’t the only thing Pittsburghers can expect to rise in the morning; the price of… The sun isn’t the only thing Pittsburghers can expect to rise in the morning; the price of their cup of coffee at some cafes is going up, too.

It’s following the Pennsylvania minimum wage, which became $6.25 per hour on New Year’s Day and increases to $7.15 on July 1. Since then, some business owners raised prices rather than laying off employees, collecting nickels and dimes from customers to keep their businesses viable.

“Cappuccinos went up from $2 to $2.15,” said Ken Kaboly, who raised prices at Squirrel Hill’s 61C Cafe to keep up with labor costs. “But everything that we sell, I tried to add 15 cents on that. That should cover it.”

Congress also is discussing a federal increase to $7.25 per hour. According to the Economic Policy Institute’s January 2007 Minimum Wage Issue Guide, the purchasing power of the federal minimum wage, $5.15, was at its lowest point since 1955, down 20 percent from its inception.

“I think the legislatures are way behind the times on this. That $5.15 mark, that was embarrassing,” Richard Kale, co-owner of Schiller’s Pharmacy in Shadyside, said.

Some economists expect minimal layoffs and price increases because so few workers make only minimum wage. However, those employers who pay just slightly above minimum wage may find their employees requesting raises.

Kale already pays his 13 employees more than the new minimum. But, he said he wouldn’t pay his workers more simply because they were closer to the minimum.

Despite Kale’s policy, Lowell Taylor, professor of economics at Carnegie Mellon University, said spillover exists.

“The idea would be, if I’m getting paid $7 now, and the minimum wage is around $5, if the minimum gets close to seven, I think I’m a substantially better worker, and I ought to get a little bit of a bump,” Taylor said.

Kaboly said he couldn’t consider giving his workers more than $7.15.

“I can’t imagine paying more than that because that’s a 40 percent increase,” he said.

The Economic Policy Institute reported that 11 percent of workers, about 14.9 million people, would be affected by a national increase to $7.25. Of those, 8.3 million workers would benefit from spillover and not directly from the increase.

Kaboly said the increase was negative because it meant more people would work at minimum wage.

“So, now, what they’ve done is create a whole host of minimum wage jobs,” he said. “Before the raise, you probably had, what, 5 percent of the jobs were minimum wage jobs. Now, you’re going to have 15 percent of the jobs be minimum wage jobs.”

The Bureau of Labor Statistics reported that 2.9 percent of Pennsylvanians who received hourly wages in 2005 worked for minimum wage or less. That was about 97,000 people.

Certain employees, including tipped workers and trainees, can receive less than the minimum wage, according to Pennsylvania’s Minimum Wage Act of 1968.

Temporary exemptions also exist. Amendments to the minimum wage law stipulate that businesses that employ 10 workers or fewer can increase wages more slowly, reaching $7.15 on Jan. 1, 2008.

Kaboly said management at 61C Cafe decided not to take advantage of the slower increase. Instead, he tried to make up the money in other places.

“It can’t go unanswered,” he added. “So, we raised prices.”

The increased wages are not the only costs they must overcome, he added. Prices for goods also increased.

“What I am worried about is the price of everything else subtly creeping up,” he said. “Everything starts, pretty much, at the lower wage jobs. I got a letter that they were raising the price of our coffee beans by 11 cents a pound. Now, that’s nothing. But when you add everything up, it gives everyone an excuse to raise prices.”

Despite Kaboly’s cause and effect reasoning, economic studies haven’t made the connection between price increases and the minimum wage, Pitt professor of economics Alexis Leon said.

“It’d be hard not to observe price increases, but tying them to minimum wage increases is what most of the literature hasn’t been able to find any evidence for,” Leon said.

Travis Crocker, co-owner of Oakland convenience store Quick Stop, is waiting to see how much the change will hurt the store before making changes.

“We’re kind of waiting to go through expenses and payrolls just to see where we come out in about three months – to see if we stay in the black or dip into the red,” he said. “And if we dip into the red, you’ve got to do what you’ve got to do. We’re definitely in danger of going into the negatives.”

Crocker said he might raise prices. He has also talked to his partner about reducing their number of employees from four to three.

Classic economic theory says employers should try to employ fewer workers if labor costs go up, Taylor said. He added that studies have not proved this happens.

“All firms are affected by this same increase in the cost structure,” he said.

“They probably won’t end up having to lay workers off because there’s a lot of turnover anyway. They just slow down their hiring,” Taylor added.

Unemployment statistics for years surrounding the last minimum wage increase in Pennsylvania might prove Taylor’s prediction. The Bureau of Labor Statistics reports a decreasing unemployment rate between 1996 and 1997, moving from 4.6 to 4.3 percent. This decrease was, however, lower than the decrease from 1995 to 1996, which was a change of 0.7 percent.

Bill Gentz, head of human resources at Hillman Library, said the library might slow its hiring.

“It’s not going to give us any latitude in our salary