SeaTac businesses stung by $15-an-hour pay

The minimum wage in this Washington city will rise to the highest in the nation next month. 'We are running pretty thin as it is,' a hotel manager says.

By MSN Money Partner Dec 12, 2013 1:21PM
By Sarah E. Needleman and Daniel Lippman, The Wall Street Journal

With 40 employees and less than $5 million in annual revenue, the franchise hotel in SeaTac, Wash., could be the typical American small business. But the Holiday Inn Express will soon have to give most of its staff pay raises that are anything but routine.

Officials in SeaTac, which is 10 square miles nestled between Seattle and Tacoma and consists of an airport and its surroundings, confirmed this month that it will raise the minimum wage for many workers to $15 an hour starting in January. That's a 63% increase and the highest municipal minimum wage in the nation.

The original vote in November was so close that a recount had to be ordered.

SeaTac is an extreme example of the mounting labor costs facing employers nationwide, and it may serve as a controlled experiment on the impact of a significant wage hike in a small community.

Elsewhere in Washington state, employers already pay $9.19 an hour, the highest state minimum wage in the country, and that amount will rise 13 cents next month. In January, Oregon's hourly minimum will climb to $9.10, New York's to $8.75 and Vermont's to $8.73. Among municipalities, San Francisco currently has the highest minimum wage, at $10.55, which will increase to $10.74 next month.

Han Kim, a partner in the 171-room Holiday Inn Express franchise in SeaTac, as well as two other SeaTac hotels, estimates that for all three, the city's wage hike to $15 hourly will result in about $400,000 in additional labor expenses.Image: Hotel maid (© Simon Jarratt/Corbis)

"We are running pretty thin as it is so we cannot eliminate positions," he says. Increasing the price of a room is too risky, he adds. "I cannot go around changing prices without my competition [also] changing them. . . . We'll have to make less money I guess."

Kim says he is putting plans to build a fourth hotel property in SeaTac on hold. "We are waiting to see how things are going to pan out," he says.

The issue is of particular concern for small employers, which often complain that they operate on thinner margins than their large counterparts. Some economists say a higher minimum wage prompts small firms to reduce workers' hours and scale back hiring, while others argue it improves employee retention and results in increased consumer spending.

President Barack Obama has backed raising the federal minimum to $10.10 an hour, from its current $7.25, by 2015. That proposal would raise the wages of about 30 million workers, who would receive more than $51 billion in additional pay over the phase-in period, according to a March report from the Economic Policy Institute.

Mike Condon says his SeaTac coffee shop won't be required to comply with the city's new $15-an-hour minimum, which applies only to hospitality and transportation workers and excludes airlines and small businesses with fewer than 25 employees.

But he expects the higher rate to make it harder for him to recruit and retain entry-level workers. "Employees of my own that are well trained can go over to these jobs at the airport now and make more money than I can possibly pay them," he says. "With our margins, I would not be able to match those salaries and stay in business."

Condon renegotiated his shop's annual lease in August so he could easily opt out in anticipation of the wage change. "I'm thinking of relocating," he says.

Most employers in SeaTac can't easily relocate. "We are left with no choice but to make the best of it," says Scott Ostrander, general manager of Cedar Brook Lodge, a boutique hotel in SeaTac with less than $10 million in annual revenue. Of its 117 employees, about 70% earn less than $15 an hour and will get automatic raises next year.

"We sit on 18 acres of naturally restored wetland. It's not like we can just pick up all 18 acres and move," he says.

About 28% of 599 small businesses across the U.S. with annual revenue of $1 million to $20 million said they support raising the federal minimum wage to $10.10 an hour, according to a survey this week by The Wall Street Journal and Vistage International; 65% were opposed and 7% selected "other."

"There are businesses that sell to low-wage earners, and so an increase in their income could translate into an increase in their business," says Richard Curtin, a research professor at the University of Michigan.

Last Thursday, fast-food workers launched protests in cities across the country, calling for higher pay and saying they can't survive on minimum-wage income. Melinda Topel, 42 years old, who makes the $7.35-an-hour minimum wage at a McDonald's franchise in Kansas City, Mo., recently went on strike seeking $15 an hour.

Asked whether a higher wage would cause her to lose hours or her job, she said: "I'm not afraid of that. McDonald's Corp. makes billions of dollars a year, thousands of dollars an hour. They can afford to pay us what we deserve."

If the minimum wage is raised, "it would help me where I can pay my rent and my utilities. I would be able to buy shoes for my kids for school, to buy clothes that they need for school, winter jackets. I wouldn't have to worry about whether or not my kids are cold, or if my lights are going to get turned off."

A McDonald's (MCD) spokeswoman said via email that the company offers its employees competitive pay and benefits.

Rondell Johnson, 23, earns the minimum in Pennsylvania, $7.25 an hour, working as a baggage handler for airport subcontractor PrimeFlight at Philadelphia International Airport.

"It's a headache. You really can't do nothing. You work to pay bills," he says, adding that he would "move tomorrow" to a city like SeaTac because of the city's significantly higher starting-pay requirements. PrimeFlight declined to comment.

Gary Gerber, founder and owner of Sun Light & Power, in Berkeley, Calif., starts his entry-level workers at $15 an hour or more and believes that arguments against a higher minimum wage are "probably being greatly over-blown." He says: "What's going to happen is the raising of the wage will pump a bunch more money into the economy."

Mr. Gerber's company, which designs and installs solar-electric and solar-hot-water systems, has 65 employees and about $14 million in annual revenue. The minimum wage in California is $8 an hour, and it's slated to increase to $9 next July. "You're going to get better quality employees if you pay better," he says.

Frank and Sydne Albanese, co-owners of a small café in downtown Seattle since 2003, say that over the years they have come up with strategies for coping with minimum-wage increases.

For example, they maintain a "skeleton crew" of just five minimum-wage earners and keep their inventory as lean as possible. "Excess inventory just means dollars are sitting in your back room," says Mr. Albanese.

The business also rents out its space for private parties, he says. "You have to find every potential revenue channel that you can."

More from The Wall Street Journal

Tags: MCD
Dec 12, 2013 2:09PM
Paying fast food workers and maids $15 an hour is ridiculous when people with college degrees are making about that in most health care positions.  What is the reason anyone would want to attempt to get ahead when you can work in entry level positions like these!  Our government INACTION!
Dec 12, 2013 2:01PM
Well, these businesses have 2 choices - layoff workers or raise prices, or maybe a combination of the two.  I'm sure those maid supervisors who worked hard for years to make it to $15/hr will be so happy that their underlings with 1 day experience will be making the same pay as them.
Dec 12, 2013 1:44PM
and so another great liberal experiment begins.....
Dec 12, 2013 2:06PM

 From the story:  "You're going to get better quality employees if you pay better," ....

Of course, and then all the idiot, slacker, nearly brain-dead ones who are demanding to be paid $15 an hour will find themselves unemployed because higher caliber people will replace them.  Why don't libs think these things through first? 

Dec 12, 2013 2:14PM

Implementing $15.00 per hour as minimum wage will create a permanent class of unemployable people.


When businesses are forced into this corner 2 things wll happen


1.  Staffing sizes will be cut

2.  People hired will be smarter and better qualified than the current employee base as employers will be very picky as to who is hired  The solution will be baby boomers


Organizations like Walmart, Home Depot, Lowes etc wil replace their entire work force with retiring baby boomers who are educated, have a good work ethic,  can speak decent english, have some common sense and want to work a few days per week to make some pocket change.  15/hr * 16 hrs per week *4 weeks = $960 per month for 2 days per week. 


The basic high school graduate , no skill ,   adult who wants to work  will not find employment so we'll continue to support them via subsidies. 


Also, the current workforce who does get a bump will theoretically see their current subsidies cut.  When that happens they'll scream, and the GOVT wil simply raise the amount that can be earned to qualify for subsidies and in doing so keep their voter base happy so they get re-elected.  Anyway you twist this it will cost tax payers more


Dec 12, 2013 2:05PM

What some people don't get (referring to the fast food employees push for higher wages), is that if they start getting $15/hour as they are demanding, the pool of employees who'll want to work in those installations skyrockets, and they have a tripe or more chance to lose their jobs.

For example... let's take the typical unskilled McDonald worker who's normally not paying attention to the customers and talking personal business with his co-workers, instead of doing what they are paid for (giving the customer their undivided attention). Then let's say someone who's currently getting paid $12/hour working for a customer service company. If that person comes and applies for a job at that McDonalds, it would be smart for the manager/owner to hire the newcomer and let go the previous employee.

In other words, the competition for those jobs will increase dramatically and those with higher skills and better resumes will get them; leaving those that are DEMANDING higher pay out in the cold and without a job.

(This is a bit away from what this article is talking about, but I wanted to make a comment on that).

Regarding this article... I expect a few people to be let go in the SeaTac are... luckily for the employees on the above mentioned hotel, they were already thin on workforce.

Dec 12, 2013 2:12PM

Here's something we all have to consider ... the world is not made up of only McDonalds and "small" businesses grossing $5 Million.  The businesses that will cease to exist are the much more common employer with 10-20 employees doing half a million or less in gross revenues.  These businesses will not survive ... period ... and along with their demise will go thousands and thousands of jobs that are currently helping to pay the bills in thousands of households.  Now consider that $15 per hour is proposed for the jobs at the bottom of the food chain.  What are you going to propose we do with the folks that are already earning $15 - $20 per hour?  The answer cannot be to make the lowest skill jobs pay more.  The answer lies in providing means for folks to increase their skills with more training and education so they will qualify for jobs that have higher value. This is just another level of entitlement that will come back to haunt more people than it will help. 

Dec 12, 2013 1:59PM
$15 an hour will eliminate any business moving to Sea Tac.  Any business expansion will mean relocation for some businesses.
Dec 12, 2013 2:01PM
Benjamin Franklin never envisioned this when he said, "when the people find they can vote themselves money, that will herald the end of the republic."  So, if a labor union can get something like this on the ballot in a large city..........think about it morons!

For those of you not familiar with SeaTac, it's a crappy area next to the airport where the hotels are always cheaper due to the less than desirable environs.  Now, if those establishments have to raise their rates to stay profitable, the hotels in the surrounding areas will profit greatly.  To you dimwitted liberals, it's not a zero sum game.

Dec 12, 2013 2:11PM
Most people around the nation work hard and long hours to eventually earn a $15 hour wage. Now in WA they just start out at that wage? You people in WA think things are expensive now? Hold on tight its about to get insanely expensive now. Everything will have a price increase. Pat each other on the back when your burger at Mcdonalds is $20 now.
Dec 12, 2013 2:08PM
SO...........the poor and the declining remnants  of the middle class will make their purchases elsewhere, a # of the lower priced stores will close, and the wealthier libs will be happy that they have 'cleaned up' the town. 
Dec 12, 2013 2:11PM

This is all because this country gave away far to many manufacturing jobs. The factory workers, design, sales, and office jobs that went out the door along with the factory jobs is killing this nation. So now to try and make up for this mess people that are underemployed are trying to make a living with jobs that were intended for high school kids or retirees trying to make some suplimental income.

Thanks to our polititions. What ding-a-lings!

Dec 12, 2013 2:14PM

As usual people can't look farther than their nose. Go on get your raise, You have now become like our government. Stimulate the economy by printing more money (and spend it), which raises the price of everything. You, the recipient of a $15 raise will spend more which will do the same thing (raise prices) and you will be back to complaining you can't  make ends meet. Read a book on economics and you will understand.

If you don't like what you are getting paid, change jobs, get an education, get smarted than the next guy. Complaining about a problem and not doing anything sounds like you want it all but are afraid to do anything about it.

Dec 12, 2013 2:11PM
So what happens when the price of goods rises?  Those people earning 15/hour will be in the same boat as when they were earning 8/hour.  The only difference will be those who are the working/middle class.  They will feel the brunt of it because they will not have a corresponding pay increase to make up for the rising prices of goods, therefore it will widen the gap between wealthy and poor.
Dec 12, 2013 2:14PM
Amazing how liberal politicians get away with destroying our economy by passing these clueless laws. With struggling businesses like my own company being forced to increase pay it means we'll go out of business. So workers lose jobs. IDIOTS 
Dec 12, 2013 1:47PM

""Han Kim, a partner in the 171-room Holiday Inn Express franchise in SeaTac, as well as two other SeaTac hotels, estimates that for all three, the city's wage hike to $15 hourly will result in about $400,000 in additional labor expense""



Dec 12, 2013 2:01PM
Now that a small town, city, or a suburb can put a ballot measure up calling for a minimum wage hike, and assuming that poor people outnumber middle class and wealthy, they will get their wage hikes, and all of the businesses in those towns will move out and close down.  People are stupid.  Do they think that the franchise owner of the Holiday in in that town is just going to suck it up?  No, he'll probably lay off all of his workers, and none of them will have a job.  Nobody will stay in that city when they can stay next door cheaper.  They already have high hotel taxes, I assume, and now they have higher labor costs.  More on the unemployemt roles.  $15 an hour for making beds and vacuuming and flipping burgers. 
Dec 12, 2013 2:16PM
So now qualified workers are going to make minimum wage, the same per hour figure as a non skilled patty pusher & sheet folder?  Yes, you are going to raise minimum workers to a decent wage, but you also pull many more skilled workers into the bottom tier of the workforce, who offer something valuable, then all costs of goods & services will increase to the point where 80% of Americans cannot sustain themselves.
Dec 12, 2013 2:12PM
Already costing jobs. Plans on hold to build a 4th hotel. How many jobs would the 4th hotel created in from the construction on. Hotels outside of this area will be undercutting the price and as always, consumers will vote with their dollars by staying at the hotels that offer the best value. Fewer employees on staff, less customer service, reason for consumers to spend their dollars elsewhere. Econ 101, maybe the politicians should take the class and try running a business of their own to gain some insight.   
Dec 12, 2013 2:08PM
The real problem is education, maybe we should establish a minumum grade allowed in school say B or B+.  This way more kids can get into better schools.
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