Small Business

What the minimum wage fight says about the economy

Wage protesters rally outside of Wendy's in New York last year. Last week, retailer Gap said it would raise the hourly pay for its U.S. employees to $9 in June 2014, and $10 in June 2015.
Getty Images

The battle over raising the U.S. minimum wage is familiar. "Higher wages will raise prices and shut down businesses!" Alternately, "We need to support families, not poverty!"

An story Thursday on the potential effects of higher wages on tipping unleashed hundreds of comments.

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"If the entire obama [sic] reign was not so tragic it would be the lower middle class is pitted against the working middle class," one reader said.

"Life shouldn't be easy for unskilled laborers," another reader concluded.

And perhaps this reader summed it up best, "Please advise the wait staff of your no tip policy before the food comes. **Spit** "

The wage fight is vocal and contentious as ever. But beyond high emotions, experiences of small-business owners, workers and employment experts suggest a mixed bag for how pay hikes would affect the American economy. Turns out the minimum-wage battle also is about the emergence of two economic realities. A prosperous, recovering America for some, and a less certain path for others still struggling after the recession.

Bill Pollack, front left, is owner of Relios, known for its American-made designer line Carolyn Pollack Sterling Jewelry. Most of his craftsmen earn more than the minimum wage.
Source: Relios

Different businesses, different wages

Bill Pollack is an Albuquerque, N.M-based small-business owner who has been in the jewelry business for nearly 40 years. He runs a 175-employee company Relios, known for its American-made designer line Carolyn Pollack Sterling Jewelry.

Pollock said less than 10 percent of his staff earn minimum wage, with most, or 100, of his workers earning higher craftsmen salaries. "Increasing the minimum wage will not have a big impact on us hiring," Pollack said.

He wants to raise the skills of his craftsmen so they can innovate, create new products and ultimately generate more sales. And that strategy means paying more than the federal minimum of $7.25 an hour. Discretionary spending broadly, including jewelry sales, has yet to rebound sharply since the recession.

And therein lies the complex rub of minimum wages.

Art of Tea CEO Steve Schwartz, based in Los Angeles, says investing in online security is a key part of his tea import and wholesale business.
Source: Daniel Seung Lee

Opposition to higher wages

While higher pay wouldn't be a deal breaker for the Relios jewelry business, it would have a much deeper impact on the restaurant and food industry, which relies on lower-wage employees.

Just ask Steve Schwartz, chief executive of Los Angeles-based Art of Tea, a tea importer and wholesaler with a staff of 25 in the U.S., plus additional support in Asia and India. Even before becoming an entrepreneur, Schwartz said he experienced the uneven effects of a wage hike as a younger employee in the workplace.

"Based on my historical experience as a worker, after a minimum wage went up, the world went up in terms of prices," Schwartz said. "People who worked hard over the years to earn more than the minimum wage, they were the ones that got most affected," he said.

Business groups including the Chamber of Commerce and the National Restaurant Association oppose any mandatory minimum wage rules. They say increases would hurt a still-struggling economy by discouraging hiring. The National Federation of Independent Business also opposes wage hikes. "At some point we hope that the president stops stacking the deck against the segment he claims to support," NFIB Chief Economist Bill Dunkelberg said last month.

Last week, the Congressional Budget Office released a report on the effects of a minimum wage hike. Both sides seized the data to rally support for—or deride—the Democratic proposal to raise the $7.25 federal minimum to $10.10 an hour by 2016.

(Read more: Worker wage hike: 'What we went on strike for')

Mike Sarowski and Betty Gratopp help manage mail order packages for Zingerman’s, a delicatessen and food business in Ann Arbor, Mich. Both earn more than the federal minimum wage of $7.25.
Source: Zingerman’s

A case for higher pay

Of course not everyone in the food business opposes higher wages.

Proponents include executives at Zingerman's, a delicatessen and food business in Ann Arbor, Mich. The original deli opened about 30 years ago and has since expanded to eight related businesses, employing a permanent staff of more than 600 workers.

Zingerman's has driven sales by investing in employees through subsidized health care and above average wages. "We invest heavily in our staff with benefits and training because we can't afford what we do without having people who are full engaged," said Paul Saginaw, co-owner of Zingerman's.

Last week, apparel retailer Gap said it would raise the hourly pay for its U.S. employees to $9 in June 2014, and $10 in June 2015, ultimately to support the bottom line. "Our decision to invest in front-line employees will directly support our business, and is one that we expect to deliver a return many times over," Chief Executive Glenn Murphy said in a letter to company employees.

Saginaw says higher wages attract quality job candidates including Mike Sarowski. He's a former Microsoft employee, who relocated to Michigan in 2009. "It was the middle of the recession, so there weren't a lot of people hiring," said Sarowski, who helps manage food mail orders. An open work culture combined with higher wages prevents high turnover and improves productivity, Saginaw said.

(Read more: Why there are fewer new US businesses and jobs)

Minimum wage, maximum impact

The underemployed and discouraged

Abera Siyoun would be thrilled to earn anywhere near $10. The father of two toddlers pockets $7.25 an hour driving a cart, carrying passengers at the Minneapolis–Saint Paul International Airport. He said the additional $2.85 an hour under the Democratic proposal—that amounts to about $22 more for an eight-hour day—would allow him to work fewer hours and pursue courses in accounting. That was his field before he moved from Ethiopia about four years ago.

"It's too hard to raise children with $7.25," said Siyoun, who helped rally legislators this week in Minneapolis to lift the minimum wage.

Siyoun, like many, patches together low-paying part-time gigs. And it's this class of the underemployed and discouraged that make up America's total unemployment level, which hovers around 12.7 percent for January.

In Bridgeport, Conn, a unique program is helping the long-term unemployed find jobs. Funded through millions in private money, WorkPlace foots the eight-week salaries of workers who secure job tryouts that could lead to permanent, full-time employment. The point is to encourage a serious look at presumed risky job candidates. The latest program in San Francisco was launched this week, its ninth location.

The economy, meanwhile, is lurching forward—not surging. In a report released Friday, the government said the U.S. economy grew at a slower pace in the fourth quarter of 2013 than first expected.

The hunt for work and higher paychecks continues. About 45 percent of WorkPlace's participants are over age 50. If you're in your 30s and 40s and unemployed, it can be an uphill battle re-entering the workforce in this economy. Said program founder Joe Carbone, "If you're 50 and older, you're facing an earthquake."

(Read more: Six years post recession, a tale of Main St. and Wall St.)

By CNBC's Heesun Wee. Follow her on Twitter @heesunwee.