BOSTON — From a minimum wage increase to rising health care and unemployment insurance, a "perfect storm" of higher labor costs could force some storefronts to go dark and slow the state's economic recovery, business leaders warn.

Beginning Jan. 1, the state's minimum wage rises to $13.50 per hour. In addition, a new paid leave law goes into effect, and small businesses will face an average 8% increase in health insurance premiums.

Unemployment insurance rates are also expected to skyrocket.

The added costs hit employers at a time when they’re still struggling to recover from a pandemic-driven recession and as government relief such as the Paycheck Protection Program is nearly tapped out, business leaders say.

What's more, sales in the retail and restaurant sectors are down 50% from a year ago, as a result of government closures and ongoing COVID-19 restrictions.

"All these things are creating a perfect storm," said Jon Hurst, president of the Retailers Association of Massachusetts. "Every small business basically needs one of two things to survive — higher sales or lower costs. Right now, the unfortunate reality is that both of those are headed in the wrong direction."

Hurst said the political climate on Beacon Hill makes the likelihood of a freeze on the minimum wage, or a delay in paid family and medical leave, unlikely. Either would require legislative action. Thus, business owners are unlikely to see a break from their rising labor costs.

"I don't think there is a political will to do anything about it," he said.

Health insurance premiums purchased by individuals and businesses through the state's health exchange are expected to rise an average 7.9% next year, according to recent filings with the state Division of Insurance.

Experts say the increases aren't directly related to the pandemic and may come as a surprise to business owners and consumers. Health care spending is down, and insurers generally have reported profits.

"It's a reflection of the rising cost of health care," said Josh Archambault, senior fellow on health care policy at the Pioneer Institute. "While people used the health care system a lot less, when they used it, it was a lot more expensive."

Meanwhile, contributions paid by employers to the state's unemployment trust fund are projected to increase by nearly 60% next year, from an average cost of $539 per employee to $858, according to Labor Department projections. The employer contribution will rise to $925 over the next four years.

The Baker administration says current contributions aren't sufficient to cover the cost of keeping unemployment benefits flowing, even with help from the federal government. The state's unemployment rate dropped to 11.3% in August but remains one of the highest in the nation.

Complicating economic recovery is the fact that workplace restrictions on capacity and social distancing are likely to remain in place until a COVID-19 vaccine is widely available.

"What's hurting small business most now is the uncertainty," said Joe Bevilacqua, president of the Merrimack Valley Chamber of Commerce. "Nobody can say when this is going to end."

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhi.com.

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