Kellene Peterson spent a few days in late January clearing shelves at the recently closed Walker's Pet Supply in Mount Vernon, where she'd worked for more than a decade as general manager.

Standing at a mostly empty counter, Peterson took a break from her work to talk about the store's closing.

"We had lots of factors all at once that forced us to close," she said. "The final straw was we weren't able to absorb the minimum wage increase."

In November, voters approved state Initiative 1433, which raises the minimum wage incrementally to $13.50 by 2020. The initiative also provides paid sick leave starting next year.

The first minimum wage increase Jan. 1 took wages from $9.47 to $11 an hour.

Proponents of the increase say it will help provide expendable income for low-income earners. That extra spending power, in theory, will trickle into businesses.

But locally, small businesses — especially those in retail, hospitality and dining — are facing challenges with the payroll bump.

For instance, Peterson wanted to hire another employee at Walker's Pet Supply because she was working 7 days a week, but the company couldn't afford it.

So the business, dogged by other problems such as competition from online sales and increasing costs, folded in late January.

The example of Walker Pet Supply, though extreme, highlights many of the struggles small-business owners face. Most stay afloat by narrow profit margins, so changes that may seem minor, such as an increase in the minimum wage, can have a big impact.

"There is an assumption by some people out there that there is tons of money being made at all these companies," said Chinook Enterprises Executive Director Rob Martin, whose manufacturing company has about 20 employees affected by the increase. "Most of them don't. They are making a modest amount of money so it puts them in a hard place."

About 30 percent of Skagit County's workforce makes $12.23 an hour or less, according to 2015 state Department of Revenue data.

The $12.23 hourly wage, with inflation, will equal $13.50 per hour in 2020, so nearly a third of those employed in the county will eventually be affected by the increase, said Department of Revenue Regional Economist Anneliese Vance-Sherman.

That number is higher than the state average.

Vance-Sherman said employers with a large number of minimum wage employees can cope with the increase in wages in a number of ways, such as by raising prices, cutting hours for employees or finding ways to be more efficient.

Allen Rhoades, co-owner of Anacortes Brewery and Rockfish Grill, said many people don't realize how difficult it is to make a restaurant profitable.

"Restaurants have low profit margins, so it's hard to absorb an increase in cost without passing it on to the consumer, unfortunately," Rhoades said.

Prices at Rockfish Grill have increased slightly to account for the minimum wage hike. Rhoades' suppliers have increased their rates too because many of them have minimum wage employees.

Pamela McNaughton, owner of the Tattered Page used bookstore in Mount Vernon, has closed her store on Sundays because of the minimum wage increase. Her store had been open 1 to 5 p.m. Sundays, employing one minimum wage employee that day.

"We didn't make enough money some days to even pay that employee before (the wage increase)," McNaughton said. "It'd be nice if they took into consideration what you make in a year or profit margin before this (rule change). Some businesses that are barely hanging on might not survive."

Edward Jones Investment Strategist Craig Fehr, who spoke at an Economic Development Alliance of Skagit County event last month, said an increase in minimum wage can raise the standard of living in certain pockets of the country.

"It can pull people up so they can be more of consumers and less paycheck-to-paycheck consumers," he said. "That being said, businesses will attempt to pass on that increased expense."

Marilyn Faber, who works in Anacortes, said she has been positively affected by the minimum wage increase in a roundabout way. Her 17-year-old son Cameron Wells earns minimum wage working at a drive-in theater in Oak Harbor.

She said her son is now better able to save money as he prepares to move out of the house and attend college.

"I don't have the luxury of giving him that good first start," Faber said. "For him, he is saving more money than he anticipated."

How a big bump in the minimum wage affects the local and state economies is unknown without long-term data. The University of Washington conducted a study looking at the economic impacts of Seattle's minimum wage increase through 2015. The study was released in July.

Vance-Sherman, who provided data for the study, said it was difficult to determine the effects of a wage increase because of so many variables amid an improving economy.

"The basic gist of it ... is it's going to be very difficult to have a clear measure early on," Vance-Sherman said. "Most of what we gathered was data to form a baseline."

The increase has created dilemmas for some employers who had employees who had already worked their way up to earning about $11 an hour.

"Now we hire someone off the street who doesn't even know how to punch a time clock and they make the same amount," Rhoades said. "The person who was working here for a while is now upset, thinking they are worth more money than the new hire. So now that person is asking for a raise ... Where does that stop?" 

Michelle Vestey, a bartender and waitress at Empire Alehouse in Mount Vernon, earns tips in addition to minimum wage. She said the wage increase can create an imbalance among restaurant workers.

For instance, cooks typically earn a higher wage than servers. With servers now getting a raise — and still earning tips — the pay difference between the positions has narrowed.

There's a chance businesses could be given more leeway in who gets paid the higher minimum wage, said Stephanie McManus, spokeswoman of the Washington Hospitality Association.

The organization is working on a bill that would make it legal to pay employees under 18 years old 85 percent of minimum wage. The current law states 14- and 15-year-olds can be paid 85 percent of minimum wage.

"That helps employers take a risk on giving people their first job," she said. "We are advocating for that."

Tri-Dee Arts owner Summer Houlihan already pays her staff above minimum wage, so she's not affected by the increase.

"It's important for us to make sure that employees make enough money to live here," she said.

She said the fact that low-income earners will have more spending power is exciting for her downtown Mount Vernon business.

"We go through struggles and it's a new hope that people will have new income to come and buy things instead of just paying rent or just paying bills," Houlihan said.

In the end, Vance-Sherman said businesses will have to adapt to the change, just like they have when faced with other new regulations.

"Anytime you have a regulatory change, especially from the government, it's not going to be well received by the people being most affected by it," she said. "The way I think of it, it's that everyone is on a learning curve and you have to adjust to it ... It's not fun, but you figure it out."

— Reporter Aaron Weinberg: 360-416-2145, aweinberg@skagitpublishing.com, Facebook.com/byaaronweinberg

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