Small businesses brace for minimum wage hike

updated 7:11 p.m. ET Dec. 18, 2006

CINCINNATI - Economists and politicians may disagree about the economic impact of a looming increase in the U.S. minimum wage, but Ohio restaurateur Dean Gregory already knows how much it will cost him.

“We've already figured out it's going to cost us between $125,000 and $150,000 a year. I'll have to raise my prices, definitely,” Gregory said.

Perched above the Ohio River in downtown Cincinnati, Gregory's Montgomery Inn at the Boathouse is the busiest independent restaurant in Ohio, serving hundreds of plates of its famous barbecued pork ribs a day.

The second-generation family eatery is one of many small businesses in America braced for a higher minimum wage.

In midterm elections in November, voters in Ohio and five other states approved increases in base pay in their states, and Democrats have pledged to use their new control of Congress to raise the federal minimum wage to $7.25 an hour over two years from the current $5.15, the first increase in a decade.

Some 14 million workers, or 10 percent of the U.S. workforce currently making less than $7.25 an hour, would see pay increases from the move.

America's low 4.5 percent unemployment rate means few employers actually pay minimum wage anymore — even McDonald's Corp. typically starts workers above $6. But restaurants who rely on tipped workers and small businesses who hire teenagers for part-time or summer work say the raise will hurt.

In Ohio, the wage is set to climb to $6.85 from $5.15 on Jan. 1. The minimum for workers who collect tips, a separate standard, will increase to $3.43 from $2.13.

At The Boathouse, dishwashers, cooks and busboys already earn more than $5.15 — “Nobody will work for minimum wage,” Gregory says. But waiters and waitresses get $2.13 an hour, plus tips.

At that rate — excluding tips — it would take servers at The Boathouse more than 10 hours to pay for a slab of the restaurant's ribs.

With tips, a good server can make up to $50,000 a year, said Jeff Ruby, owner of the high-end Jeff Ruby's steakhouses in Indiana, Kentucky and Ohio.

While the restaurant industry has been the most vocal opponent of the wage increase, Ruby said the tight labor market means he's already paying up to $11 an hour for dishwashers at his restaurants. An extra $1.30 an hour for his waitresses is a drop in the bucket in such a competitive market.

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