The question of whether voters in Arkansas and Missouri should approve minimum wage increases is dividing candidates along party lines in competitive congressional races in both states.
The restaurant industry, including large chains with dozens of locations across both states, keeps a close eye on minimum wage hike ballot initiatives as higher labor costs add pressure to profit margins.
"I think wages for restaurants is the single biggest concern out there if you're looking at a margin perspective," Moody's Vice President Bill Fahy said in an interview.
Wage hikes divide candidates in tight House, Senate races
At issue before voters in Missouri is a ballot proposal to increase the minimum wage to $8.60 an hour in 2019 from the current $7.85 per hour, with a gradual increase to $12 per hour in 2023. Arkansas voters, meanwhile, will weigh boosting the current hourly wage of $8.50 to $9.25 in 2019, $10 in 2020 and $11 in 2021.
Both states are already above the federal level of $7.25 per hour, along with 27 other states and Washington, D.C., according to the U.S. Department of Labor.
Sen. Claire McCaskill, D-Mo., is defending her seat against Attorney General Josh Hawley in a race the Cook Political Report considers a toss-up. Democrats need to hold the seat, along with 23 others they are defending, and take two more from Republicans to strip the GOP majority from the Senate.
McCaskill is using the minimum wage issue as one of many attacks against Hawley by claiming he opposes the increase while she supports it, McCaskill's campaign Press Secretary Eric Mee said in an email.
Hawley, however, has said he supports a minimum wage increase but has not taken a position on the state's specific ballot measure, according to an Aug. 31 report by the St. Louis Post-Dispatch. His campaign did not return messages from S&P Global Market Intelligence seeking comment.
In the state's 2nd District, Rep. Ann Wagner, R-Mo., is fighting off a challenge from Democrat Cort VanOstran in a competitive race that leans Republican, according to the Cook Political Report.
Wagner opposes a federal minimum wage, instead preferring the market dictate minimum wages, while VanOstran supports Missouri's proposal, according to St. Louis Public Radio. The campaigns didn't return messages seeking further comment on the issue.
Meanwhile, Rep. French Hill, R-Ark., has come out against the measure as he seeks to defend his seat against Democratic challenger Clarke Tucker, who supports the measure, according to statements from each campaign provided to S&P Global Market Intelligence. The competitive race leans Republican, according to Cook.
The issue, however, is not likely to draw Arkansas voters to support a particular candidate over another, said Janine Parry, professor and Arkansas poll director for the Department of Political Science at the University of Arkansas.
"I think it's a little different here. It's seen as a state-level economic issue that's not inherently partisan," Parry said in an interview.
Campaign donors, though, are overwhelmingly backing the increases. Committees raised more than $5.7 million in Missouri and $605,000 in Arkansas for campaigns supporting the measures as of Sept. 30, according to financial disclosures.
Opponents raised $66,700 in Arkansas during the same time period, including $25,000 from an independent political action committee of McDonald's franchisees in the state, while no committees against Missouri's ballot measure have registered with state elections officials as of Sept. 30.
And both states have a track record of approving proposed wage increases.
In Missouri, 76% of voters approved a minimum wage in 2006, while Arkansas voters approved a 2014 hike by a nearly 2-to-1 margin, according to elections records.
Outside the ballot box, Birmingham, Ala., is fighting the state government in court over the legislature's passage of a law that killed the city's minimum wage hike. An appeals court in July reversed a dismissal of the case and allowed a civil rights argument to proceed, according to court records.
Hike could hit restaurant margins
Large restaurant chains, meanwhile, so far have not taken a public position on either measure and have not donated to campaigns on either side, according to campaign finance records.
McDonald's Corp., Starbucks Corp., Taco Bell and Pizza Hut parent YUM! Brands Inc., Burger King and Popeyes owner Restaurant Brands International Inc., Olive Garden operator Darden Restaurants Inc., The Wendy's Co., and Dunkin' Brands Group Inc.'s Dunkin' did not respond to requests for comment from S&P Global Market Intelligence or their wage practices.
Sen. Bernie Sanders, I-Vt., has called on McDonald's to hike employee pay to $15 per hour. The fast-food chain in 2015 boosted pay for about 90,000 workers at some 1,500 corporate stores in the U.S., though that did not cover about 750,000 workers in about 12,500 franchised locations, according to The New York Times.
Starbucks, however, pumped $250 million into mostly wages in 2017 without government mandates, CFO Scott Maw told investors and analysts during a November conference call, suggesting the company pays employees more than the minimum wage.
As of October 2017, the most recent data available, the coffee giant had 56 stores in Arkansas and 193 in Missouri out of nearly 14,000 stores in the U.S., according to the data.
Generally, companies are responding to pressures from wage increases by using technology to reduce the necessary number of workers, Moody's Fahy said. That includes implementing ordering through kiosks and mobile phones, pay stations at tables and simplifying menus to reduce the necessary number of workers.
Those solutions are easier for large chains to implement.
"I think the larger guys have more levers to pull to be able to mitigate it versus the smaller mom and pops," Fahy said.
Trade groups in both states, meanwhile, said the minimum wage increases would hurt business and employees.
"We are currently in a tight labor market and businesses are paying more to get and keep good employees. The market is determining the wages and that is the way it should be," Arkansas Hospitality Association CEO Montine McNulty said in an email to S&P Global Market Intelligence.
The association is also mounting a court challenge to the signature-gathering effort that put the question on the ballot, McNulty said.
Proponents, meanwhile, argue the increases will help low-wage earners and the extra money will be funneled back into local economies, according to Raise Up Missouri and Arkansans for a Fair Wage.
Economists said job loss is generally limited after a wage hike.
"It's going to vary but generally you don't see massive job loss quickly," said Harry Holzer, a nonresident senior fellow of economics at the Brookings Institution and professor at the McCourt School of Public Policy at Georgetown.
Hiring does fall, though employee turnover also generally drops in lower-wage industries, said Ben Zipperer, an economist at the Economic Policy Institute, a liberal think tank in Washington, D.C.
"That is one key reason why you don't see big, negative changes in the total amounts of workers working after a minimum wage increase," Zipperer said.
Neil Powell and Cat Weeks contributed to this article.