Fact Check: Minimum wage hike may hurt small businesses in Colorado

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Fact Check: Minimum wage hike may hurt small businesses in Colorado

Alexandra Janney, CU News Corps

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Amendment 70 would increase minimum wage from $8.31 to $12 an hour. Currently, Colorado’s minimum wage is $1.06 above the federal requirement of $7.25 per hour.

Minimum wage would increase incrementally until it reaches the full $12 in 2020. After 2020, annual adjustments would be made in Colorado to account for inflated costs of living. The bill also ensures that no more than $3.02 in tip income can be used to offset the minimum wage.

In a recent political ad published by Keep Colorado Working, La Cueva Mexican Restaurant owner Alfonso Nunez is quoted on his position regarding the amendment:  “This is a tough business; small profit margins. The minimum wage will affect us immensely. It would cost me about $72,000 over a three-year period. So with a 3 to 7 percent profit margin, I don’t know where that’s going to come from”.

Additionally, the ad included an economist’s projection, — published in the Denver Business Journal — that 90,000 jobs would be lost in Colorado if the amendment were to pass.

However this commercial funded by the campaign group, Keep Colorado Working, is not entirely accurate.

“This (restaurant industry) is a tough business; small profit margins”.

This statement is true. According to the Colorado Restaurant Association, a nonprofit membership trade group and advocate for the Colorado foodservice industry, a typical $15 restaurant meal gets broken down as follows:

  • $5.04 employee salaries and wages
  • $4.95 food and beverage costs
  • $4.40 operating costs
  • $0.61 operator income before taxes

This means that of the initial $15 paid, only $0.61 is allotted to pure income for the owner before taxes. That’s a 4.07 percent profit margin, which makes Nunez’s statement accurate regarding profit margins in general.

In a Denver Post article about the industry’s slim margins, Jennifer Jasinki, an award-winning chef and co-owner of several Denver restaurants said: “It is a very big misconception, people thinking that we have large (profit) margins.”

Bobby Stuckey, co-founder of Frasca in Boulder, said in the same article: “If you’re in fine dining and bringing 10 percent profit to the bottom line, you are considered a hero in the restaurant industry.”

“The minimum wage will affect us immensely. It would cost me about $72,000 over a three-year period. So with a 3 to 7 percent profit margin, I don’t know where that’s going to come from.”

This statement is mostly true.

Most successful restaurants clear 3 to 6 percent. However, the profit margins may vary depending on the prices set for food and drink as well as how large your business is and how many locations are in operation. Fine dining restaurants will generate a much larger revenue than, say, a coffee shop.

However, disposable income is expected to increase 3.5 percent in Colorado, compared to 3.3 percent nationally, by the end of 2016. Thus, an increase in minimum wage means even more people will have more money to spend on personal expenditures, including eating out, beginning when the law would take effect in 2017.

According to Durango economist Sarah Wilhelm in an article published by The Grand Junction Daily Sentinel, raising the minimum wage would ““put more dollars into the economy and into the hands of people who are going to spend it,” Wilhelm said. “When someone who lives on a minimum wage, when they get an extra dollar or $200 in their pockets, that goes right into the local community. They spend it at the gas station, at the auto repair shop, at the grocery story. They don’t take out a Swiss bank account, they don’t go to Aruba on vacation. They spend it right in the local economy, and probably spend it the next day. It churns dollars through the economy.”

The ad claims that 90,000 Colorado jobs would be lost if the amendment were to pass.

This statement is only half true. The fiscal impact statement regarding government spending states that Amendment 70 will affect the overall costs for several state government agencies. The estimate of fiscal impact in this year’s state ballot information booklet reads: “Any state agency that pays an employee an hourly wage less than that required by Amendment 70 will experience incremental increase in staffing costs…local government impact has not been estimated”. Therefore, the exact number of jobs lost has not been officially estimated in conjunction with private business owners.

In opposition to the study conducted by economist Eric Fruits and cited in the ad, Tim Hoover of the Colorado Fiscal Institute, cited an in-house study done by the CFI’s Chris Stiffler: “The historical evidence does not line up. We actually experienced two years of job growth (after 2006 increase).”

The CFI is a left-leaning organization that aims to inform and influence policy debates regarding economic issues within Colorado.

Another study, conducted by Magellan Strategies, in August 2016, found that 55 percent of respondents supported Amendment 70. Magellan surveyed 500 general election voters in Colorado.

So far the activist group Colorado Families for Fair Wage, which advocates for the initiative, has nearly doubled the financial and political support from the state than the opposing groups.

The partisan divide on the issue remains steep, with 83 percent of Democrats, 60 percent of independents and 24 percent of Republicans supporting Amendment 70.

Alexandra Janney is a senior in the journalism department of the College of Media, Communication and Information at the University of Colorado Boulder. She has worked as a production assistant for the special events department at Warner Bros. and is interested in pursuing beat reporting for the entertainment industry. This is her first assignment for CU News Corps. 

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