Flagstaff small business struggles fuel worries over steep mandated wage hikes

Arizona businesses already struggling under a pandemic-induced downturn and multi-year mandated wage hikes that have increased incrementally over the past four years are closely watching the debate on Capitol Hill over whether to raise the federal minimum wage to $15 an hour.

On January 1, the state’s minimum wage rose to $12.15 an hour. That’s higher than many other states that have higher costs of living, business advocates said.

“Arizona ranks 30th in affordability indexes and 24th in the cost of living index, yet we have the fourth highest minimum wage in the country,” Amber Smith, the president and CEO of the Tucson Metro Chamber of Commerce said recently. “The top three states with the highest minimum wage have higher costs of living than the national average, and yet Arizona’s is three percentage points lower than that same national average.”

That hurts cities like Tucson trying to compete for both employers and employees, Smith said. 

Small city of Flagstaff has state’s highest minimum wage 

Few business communities have been harder hit than Flagstaff in Northern Arizona. The city is experiencing firsthand the impacts of steep mandated wage hikes. 

Currently, it has the highest minimum wage in the state at $15 per hour. 

Due to a voter-approved measure that was amended by the City Council, the city’s minimum wage will rise to $17 an hour if Congress approves a proposal to increase the national minimum wage to $15.

“This has been ongoing for a few years and now we have the greatest disparity,” said Joe Galli, vice president of government affairs for the Greater Flagstaff Chamber of Commerce. “The hardest hit are the industries with the smallest margins of profits, including restaurants, bars and tourism-related industries. 

“Our business owners tell us all the time that when they’re told they have to pay a higher wage, they respond by streamlining, whether it’s automating, cutting employee hours, or reducing the overall number of employees. They pay the higher wage, but they pay it to less people and they pay it for less hours.”

Raise the Wage Act stalled for now 

Now is not the time for high wage mandates, chambers of commerce and business advocacy groups are telling Congress.    

Earlier this month, the Raise the Wage Act of 2021 was introduced in the U.S. House. The bill calls for more than doubling the minimum wage from $7.25 to $15 an hour over the next four years. 

On Tuesday, Senate Republicans countered with a plan to raise the federal minimum wage to $10 an hour. Under their plan, businesses would be required to E-Verify employees electronically to prevent the hiring of undocumented workers. Arizona is one of about 11 states that already require use of the E-Verify system.

As some members of Congress call for higher wages, lawmakers will need to find solutions to raise the lowest incomes without hurting job creators, business advocates said. 

A recent report out of the Congressional Budget Office states that a $15 minimum wage would result in the loss of an estimated 1.4 million jobs and push the nation’s debt up to $54 billion over the next decade.

Losing competitive advantage  

In Arizona, restaurants, gyms and other industries are still operating under limited capacity requirements. They must have an opportunity to fully recover, business advocates said. 

In Flagstaff, which relies heavily on tourism, employers have seen the cost of business accelerating at “an unprecedented rate” under the wage hikes, affecting both employers and employees, Galli said. It’s not just small businesses. Some larger employers also report losing hundreds of thousands of dollars to their bottom line.  

Galli cited the example of a salaried employee whose child care costs went up $1,000 a year, forcing the individual to switch jobs. A local business owner reported having to cut labor hours from 250 to 200.

Mark Harris, general manager at Terry Marxen Chevrolet Cadillac in Flagstaff, told the Arizona Daily Sun earlier this year that the latest wage hike to $15 in January will increase the dealership’s personnel costs by about $65,000, not including overtime or other raises.

Raising vehicle prices to cover the costs is not an option, he said. That would only further hamper his ability to compete with other dealers across the state.

“I’m all for everybody making $15 an hour. What I’m not calling for is that Flagstaff is the only one doing it because it puts us at a competitive disadvantage. If the whole state was at $15, it’s a no-brainer,” Harris said. “I’m going to spend close to $200,000 extra in labor for the same number of labor hours in 2021 than my nearest competitors, and that puts us at a competitive disadvantage. That’s my biggest concern.”

Higher wage mandates putting Arizona at disadvantage 

As Arizona’s minimum wage outpaces other states, employers here are less able to offer benefits like tuition waivers and stock options for employees, Smith of the Tucson Metro Chamber stated. 

That puts Arizona at a disadvantage when employers and employees are looking for new locations to set up shop. 

“So, in spite of having one the highest minimum wages, and our cost of living lower than the national average, we are still ranked only 30th in affordability of 50 states, all the while losing competitive advantages of locally owned companies that significantly contribute to our local economy.”

Minimum wage hikes in Arizona

January 1, 2018 $10.50

January 1, 2019 $11.00

January 1, 2020 $12.00

January 1, 2021  $12.15

Minimum wage hikes in Flagstaff 

2018 $11

2019 $12

2020 $13

2021 $15

2022 $15.50