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Economists and businesses debate the risky idea of raising the minimum wage during the pandemic

Economists mixed on impact to businesses, families
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Posted at 11:14 PM, Mar 03, 2021
and last updated 2021-03-04 01:14:36-05

DENVER — In Denver’s Five Points neighborhood, Welton Street Café has been serving up a little soul food to locals for decades.

“My family started this business in ’85, ’86,” said Fathima Dickerson, co-owner of Welton Street Café. “And we’ve been Welton Street Café since July of ’99.”

This past year was, perhaps, one of their most challenging.

“I’s a fight,” Dickerson said. “When you have COVID come in, you’re like, ‘Nobody’s walking down the street. What’s going on?’ I think this is still an emotional conversation for me to talk about — saving your black business during a pandemic.”

Making matters more complicated for Dickerson is a renewed talk at the federal level of a minimum wage hike, which Welton Street has been through before.

“Minimum wage went up, we went up,” Dickerson said. “Our prices went up. People are coming in here like, ‘Well, last week it was…’ I said, ‘Last week is gone. We’re living today. This is the moment we’re in.’ If the minimum wage goes up, we either cut hours or raise prices.”

Denver7 is taking the discussion 360 with other business owners, economists experts who are split on the issue of increasing the minimum wage to $15-an-hour and the workers — like Ellie Kennedy — who say the increase would be a game changer.

“Yeah, of course it would,” Kennedy said. “I’m signed up for low-income housing right now. It’s tough. You know, other costs are going to rise as well.”

There’s certainly no question about Colorado’s skyrocketing cost of living.

“It’s rising quite a bit,” said Orlando, who has seen that firsthand.

He recently finished some electrical wiring on new and remodeled homes in west Denver.

“They’re like million-dollar homes, and I’m from Denver; it kind of made me sick,” Orlando said. “It kind of made me irritated compared to what I was getting paid doing all that stuff.”

While wage increases tend to follow inflation, Metropolitan State University of Denver professor of economics Alex Padilla and other economists said it’s not always that simple.

“The popular idea is that a higher minimum wage is going to help the poor,” said Padilla, who is also the director of the Exploring Economic Freedom Project. “That could lead to further unemployment.”

Padilla said if the minimum wage gets too high, some businesses have no other choice but to make cuts.

“Because businesses can’t afford to pay them,” he said.

If businesses don’t cut staff, sometimes they’re cutting back on hours, so they’re paying staff less to offset higher wages, according to Padilla.

Welton Street has already reduced hours during the pandemic.

“There may be a decrease in hours of operation,” Dickerson said. “I don’t want to lay off staff, so you’re going to have to get really creative.”

For further evidence of small businesses scaling back hours, Padilla said look no further than Seattle, Washington, which recently raised its minimum wage to $15-an-hour.

Studies show unemployment did not rise like some had predicted, but businesses cut back on hours, causing workers to seek employment elsewhere.

“They tend to go to neighboring cities outside Seattle to get more hours,” Padilla said. “You could make the argument – how does that improve your quality of life when you have to work two jobs?”

“It is a tricky topic,” said Jack Strauss, Miller Chair of applied economics at the University of Denver’s Daniel’s College of Business.

He both agrees and disagrees with Padilla on certain points.

“Having a livable wage makes sense,” Strauss said. “It’s certainly a legitimate argument, however, that $15-an-hour is too much. And this is perhaps where the Biden administration is failing, but not completely.”

Strauss said Republicans and Democrats in Congress likely won’t agree on $15-an-hour, especially lawmakers on both sides of the aisle from states where the cost of living isn’t quite as high as Colorado.

“This issue of a livable wage does differ by cost of living and therefore changes by state,” Strauss said. “They might have to negotiate from $15-an-hour down to $12-an-hour, which would be an equitable solution.”

Padilla argues workers might also lose fringe benefits if the minimum wage goes up, like discounts on clothing for those in retail and free lunch for those in the restaurant industry.

“And now they have to pay for parking or they no longer have a free lunch,” Padilla said. “Those fringe benefits can often amount to hundreds, if not thousands of dollars a year.”

He also sees a potential impact on consumer spending.

“Because most employers and businesses are going to pass the increase in minimum wage to their customers,” Padilla said. “Customers paying higher prices might scale back their consumer spending, and therefore the business will decrease the output — the amount of goods and services produced — which leads to a decrease in number of hours worked.”

Padilla's opinion is that minimum wage increases are best left to local governments. That’s a fight Colorado saw play out in Aurora a few months ago, where a measure to eventually raise the minimum wage to $20-an-hour failed in city council.

“We need to make it possible for people to live in our city and be able to thrive on just one job,” the author of that measure, councilwoman Alison Coombs, said.

But Aurora Mayor Mike Coffman and others said $20-an-hour was a business and jobs killer.

“The end point of this policy will be replacing pay checks with welfare checks,” Coffman said.

Sanjeev Kanherkar opened The Great Greek in Aurora just last year.

“Literally a month before COVID,” Kanherkar said. “Since then, it’s been an uphill climb.”

He had to reduce staff by 50% and fears any hike in the minimum wage might be another setback. He’s already paying his staff above minimum wage.

“For us, that is more important,” Kanherkar said. “Keeping the employees happy.”

Both The Great Greek and Welton Street are already paying way more for paper products than ever before.

“My paper good costs have gone up almost three times,” Kanherkar said. “We’re operating to-go, so now we’re buying more paper products.”

At Welton Street, Dickerson said they survived last summer without fixing the broken air conditioning so they wouldn’t have to let anyone go.

“Talk about torture,” Dickerson said. “Talk about trying to serve community — with no air, and facemasks and social distancing and all of these other things. I said, ‘My job is to feed people and that is it.’”

It's an attitude of survival at a crucial moment in time.

“One of the hardest things about being a black business, in general, is finding help,” Dickerson said. “You gotta be good at it.”

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