This spring, Seattle's $15 minimum wage law will receive maximum attention when the Supreme Court decides whether to hear a case brought against the city by the International Franchise Association (IFA). On Monday, the association asked the Court to review a portion of the law that allegedly discriminates against franchise owners.
The city's controversial law creates a series of phase-in schedules depending on the business size, with small businesses receiving more time to adjust than large ones. Here's the hitch: Franchises, such as Subway or Ace Hardware, must implement a $15 minimum wage on the accelerated schedule--even if they're owned independently by a local family who operates one or two locations.
Dr. Lloyd Corder, adjunct professor at Carnegie-Mellon and University of Pittsburgh, recently conducted a nationally representative survey of franchise and non-franchised businesses that questions the validity of this argument. Corder surveyed over 600 franchise and non-franchise businesses owners in the 24 largest U.S. metropolitan areas about their responses to a $15 minimum wage. He focused on eight key industries such as restaurants and hotels that generally employ more minimum-wage earners.
He found that a $15 minimum wage has a more negative impact on franchise businesses than their non-franchise counterparts. For example, when asked about their reactions to a $15 minimum wage, nearly two-thirds of franchise businesses said they’d consider cutting staff, compared with about 50 percent of independent businesses. A similar disparity occurs for those businesses who claimed they would reduce hours.
The survey indicates that franchise owners are more likely than non-franchise owners to employ minimum wage workers, meaning the burden of a $15 minimum wage is greater for franchisees
But even in low margin industries where both franchises and non-franchises are likely to take measures to offset increased labor costs, the negative impacts are still more disruptive for franchisees. More than 80 percent of quick-service restaurants said that a wage hike would force them to hire fewer workers, compared with 58 percent of their independent counterparts. Nearly nine in 10 franchise hotel owners claimed they’d raise room rates to offset the higher labor cost, while 70 percent of non-franchisees said the same.
These negative effects are not just a hypothetical. Ritu Shah-Burnham, who owned a Z Pizza franchise in Seattle with 12 employees, thought of herself as a small business owner, but the city’s wage law said otherwise. As a result of her affiliation with a recognizable brand, she was forced to pay the city’s $15 wage requirement on an accelerated and unmanageable schedule--forcing her to close in August of last year. She claims that if Z Pizza had been classified as the small business it was, it might have saved her restaurant.
A $15 minimum wage will have negative consequences for the majority of low-margin businesses, whether they are franchises or not. By targeting businesses with a recognizable brand for uniquely harsh treatment, policymakers are simply exacerbating the damage.
Saltsman is research director at the Employment Policies Institute, which receives support from restaurants, foundations, and individuals.