Preparing For Higher Labor Costs

Posted On: 8/17/2016

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TAGS: Vending Times, Vending Times editorial, vending industry, coin-op, vending machine, coin machine business, office coffee service, vending machine operator, micro markets, Alicia Lavay, minimum wage increase, small-business news, Amusement and Music Operators Association

Alicia Lavay, vending, Vending Times

Independent operators (and trade magazine publishers) are keenly aware that small-business owners must do everything they can to thrive in our slowly recovering economy in the face of steadily rising costs. In order to grow, entrepreneurs need to manage costs while sustaining consumer demand. I wonder what effect the current campaign for a higher federal minimum wage will have on this task.

Throughout the varied histories of this industry's segments, from jukebox operators to full-line vending pioneers with new fresh-food and cup cold drink machines, innovators have been challenged (and sometimes affected) by government action. The rise of strong trade associations is attributable to the devotion of those trailblazing operators who put their vigorous competition on hold to work together for their mutual benefit. This has proven effective in establishing channels of communication by which legislators and regulators get reliable information about the potential effects of their proposed actions.

But the challenge now extends beyond effective communication and government relations. Across the country, thousands of workers, mostly in large retail and foodservice chains, have been agitating for steep increases in the federal minimum wage to $15 per hour, in what organizers describe as the largest wage protests in American history. Rallies have taken place in 230 cities from coast to coast.

Some have argued that raising wages across the board, without reference to productivity, simply provokes price increases to offset the increased cost of doing business, so the worker's cost of living goes up and nothing is gained. Others contend that average wage rates have lagged behind productivity gains, contributing to the "inequality" of which we hear so much.

The difficulty is that different industries and businesses of different sizes are very hard to squeeze into one mold. An example of the complexity is playing out in Oakland, CA, where a 36% increase in minimum wage -- from the statewide minimum of $9 to $12.25 -- has already taken effect. Some restaurants have responded by raising their prices by 7% to 8%, or adding a service charge, in lieu of voluntary tips. They are experimenting with different approaches to paying higher wages without pricing themselves out of the market.

The most vocal advocates of a higher minimum wage sometimes speak as though the primary goal is to hit large corporations in the wallet. Most of these activists' attention, therefore, is focused on chain restaurants such as McDonald's and big retail chains like Wal-Mart. They should realize, though, that raising the minimum wage could also have a major impact on small businesses. There have been news reports from San Francisco about supporters of that city's higher minimum wage being saddened to find that it has compelled a number of their favorite small stores to shut down. And wage inflation without an increase in productivity drives the shift to automation. Fast-food restaurants have been exploring their options here, and the belief that this industry will remain a substantial job creator may be wrong.

Labor issues have been the topic at many business seminars I have attended. They were highlighted at the F2FEC in February, and the Amusement and Music Operators Association has joined the Partnership to Protect Workplace Opportunity, an advocacy group for businesses concerned about changes to overtime regulations. | SEE STORY

There are certainly arguments on both sides. Raising the minimum wage would increase family income for many low-wage workers, moving some of them out of poverty. But some jobs for low-wage workers surely would be eliminated, including the entry-level positions that can position young workers on the starting rung of the employment ladder. And, while we think about that, we should keep in mind that the U.S. Department of Labor's new overtime rule could give many salaried employees who put in more than 40 hours of work per week a big lift in their paychecks -- but changes to overtime regulations will also have a substantial effect on business owners, their hiring plans, and their interest in exploring automation.

As commodity costs stabilize, and an improving economy loosens consumers' wallets, our industry is finally in a position to apply improved profits to the task of expanding. But expansion increases labor costs. How will a $15 wage increase and new overtime regulations affect small business owners, managers and employees in the vending and amusement industries? Controlling labor expense while maintaining quality is vital in vending and amusement operations; staff turnover impairs efficiency and boosts recruiting and hiring costs.

Investment in laborsaving technology can play an important role in maintaining profitability. Policymakers ought to be mindful of this when they plan to revise the minimum-wage rules.