At the start of 2020, Learning Ladder Child Development Center in Mount Vernon, Washington, will raise its prices. That’s one strategy the child care center and other Skagit County businesses are using to cope with an upcoming minimum wage increase.

On Jan. 1, the minimum wage will go up from $12 to $13.50 an hour, the fourth — and largest — annual increase since voters approved Initiative 1433 in 2016.

“It’s great my employees will have more money in their pockets, but the flip side is everything else is going up,” said co-owner Mike Moser.

He said the child care center’s 25 employees at all levels of the pay scale will receive raises, which will cost the business at least $60,000 a year.

To compensate, tuition will go from $900 to $980 a month for the preschool program, and from $1,180 to $1,300 a month for the infant program, Moser said.

Co-owner Michelle Moser said this year’s minimum wage increase — $1.50 up from 50 cents in past years — is dramatic.

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The wage increase puts child care centers between a rock and hard place because of required staff-to-child ratios, which take away the option to cut back on staff. And while tuition goes up, state subsidies to help low-income families afford child care are not increasing, she said.

“(We are) diligently looking at decreasing other expenses to try to retain some of that buffer so we don’t have to dramatically increase tuition,” she said. “That’s not easy either. We don’t want to cut back on quality of food or experiences for children. It’s going to take some good evaluation.”

Expected impacts of minimum-wage increase

Anneliese Vance-Sherman, regional labor economist for the state Employment Security Department, said findings from the University of Washington’s ongoing study of Seattle’s minimum wage increase can be applied to areas such as Skagit County. Vance-Sherman said she was involved with the development of the study.

The data suggests that after Seattle’s minimum wage increase, workers were better off due a higher overall pay rate. But while more experienced workers saw their earnings go up, employees with little on-the-job experience saw fewer opportunities, according to the study.

The impacts will vary by industry and geography, Vance-Sherman said. The increase is more likely to affect rural counties, where a higher percentage of the workforce has minimum wage jobs, and is more likely to affect jobs in industries such as agriculture, food service, accommodations and day care.

The study suggested businesses found ways to adjust by raising prices, shifting work hours to overtime-exempt employees such as managers, and “labor substitution” — such as buying precut vegetables instead of paying a worker to do it, Vance-Sherman said.

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What some businesses are doing to adjust to the minimum-wage increase

Karin Springer, co-owner of Trumpeter Public House in downtown Mount Vernon, said in years past the restaurant was able to absorb smaller minimum wage increases or raise prices so little that doing so was hardly noticed by customers. That won’t be the case with the upcoming $1.50 pay bump, she said. And she worries the higher prices will hurt business.

“Every single sales makes a difference,” she said. “Let’s say you come in for dinner. Right now you can have an appetizer, an entree and a dessert. With the prices going up, are you going to be able to afford all of those things, or are you going to have to cut something out?”

To keep labor costs down, the restaurant already makes sure it only has the staffing it needs. She and co-owner Paul Springer pitch in when it gets busy.

Brenda Schmidt, general manager of Calico Cupboard Cafe and Bakery restaurants in Mount Vernon, Anacortes and La Conner, said servers — who earn tips on top of a minimum wage and already make more than cooks, baristas and bakers — will benefit most from the wage increase.

“There’s a little bit unfairness,” she said. “Our dilemma is keeping the back-of-house (staff) happy with giving them a little bit of a raise. (The wage increase) will be heavily weighted toward the front-of-house.”

The restaurant is adjusting by asking front-of-house staff to take on some back-of-house duties, she said.

Eli Barrett, co-owner of Pelican Bay Books & Coffeehouse in Anacortes, said the minimum wage increase makes it more difficult to first-time job applicants because of the cost to the business to train inexperienced workers.

Low-wage jobs give young people a chance to learn soft skills, such as showing up on time and interacting with co-workers, he said.

“I would like to be able to give more young people the opportunities to work that I had,” he said.

More businesses may turn to automation in the future if low-wage labor becomes too expensive, Barrett said.

More spending money in the local economy

Scott Bailey, also a regional economist for the Employment Security Department, said boosting the minimum wage allows workers to spend more money in the local economy.

“(Maybe) I’ve put off getting my car fixed, or gone without an oil change, or day care costs just went up,” he said. “And now we finally have a little bit to splurge to take the kids out to a meal for a birthday, or can spend a little more at holidays to get gifts.”

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Elizabeth Dirks, a barista at Pelican Bay Books & Coffeehouse, said when she moved to the area from the Midwest, the higher wage seemed like a lot at first. But she found it was needed to keep up with the higher cost of living.

“Minimum wage increase is not extra spending money — it’s rent and money to feed yourself,” she said. “Any increase is a help.”

More minimum-wage changes to come

In 2021, the state will start making annual cost-of-living adjustments to the minimum wage.

Tim Church, spokesperson for state Department of Labor & Industries, said the average cost-of-living adjustment to the minimum wage will be about a 2% increase a year.

In January, employers will have to adjust to another change — a recent revision to the federal overtime exemption rule. Starting in 2020, businesses must pay salaried workers who perform certain job duties at least $684 a week, or $35,568 a year, to exempt them from overtime pay, according to Labor & Industries.

The state’s new overtime pay rule, which was updated this month, requires the salary threshold for overtime-exempt employees to rise in increments to get to 2.5 times the state minimum wage by 2028.

The department stated that employers have the following options: Raise the employee’s salary to meet the new threshold, convert workers to nonexempt salary or hourly and pay overtime for hours worked more than 40 in a week, or limit hours to reduce overtime costs.

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