How Small Businesses Will Be Impacted By Minimum Wage Increase

The impact of a minimum wage increase is hotly being debated across the country. Perhaps the most attuned to this debate: small business owners. And while most action in terms of any minimum wage hikes is more of a state-based decision, there could be an increase in the federal minimum wage given the current economic situation. A topic of the presidential platforms, there is some push to raise the federal minimum wage to 15.00. What exactly could this do to small businesses? That remains to be seen; however, as some states have already gone up to $15, there is evidence regarding how a higher minimum wage could affect small businesses. In this article, we look at the potential impact that a federal minimum wage increase might have when it comes to the country’s smaller businesses.

The United States introduced the concept of the minimum wage in the late 1930s. In 2009, the federal minimum wage was set at 7.25. This is where it has since remained. That said, as noted, there is some talk about potentially raising that to 15.00.

Effects of a Minimum Wage Increase

Many states have already increased their minimum wage to 15.00. The federal rate though has yet to change from that set in 2009. Some of the effects that those who are not in support of increasing minimum wage cite:

• Increased unemployment of unskilled workers. While the logic here may seem a bit perplexing, studies have shown that those workers who tend to fall into the unskilled category are hurt in this case. Once businesses are forced to pay employees more, they tend to gravitate toward more skilled/educated workers who are ultimately more productive. This then puts poorer, unskilled workers at a significant disadvantage thus leading to higher unemployment among this group of laborers.
• It is simply common sense, if the minimum wage goes up, businesses are having to pay employees more. This in turn is likely to get passed on to the customer. This then means that the cost of the products and/or services is going to go up as a result. Another option would be to reduce the number of goods produced and thus sold, but this could very well cripple the businesses especially at a time when so many are struggling to make ends meet.
• If the government did do a 15.00 minimum wage rate, this then would go for all sates across the board. That said, there is some disparity here. Not all states are on the same scale as far as the cost of living for example. So for those with lower costs of living, where money by way of wages goes further, many of the small business owners in these states and more rural areas for example simply will not be able to handle the added financial burden. Especially for example when looking at restaurants in smaller towns. Having to be at a limited capacity, they are trying to find a creative way in many instances to just make it by. Increasing the minimum wage could force them to shut their doors for good.

The Positive Impact

There are proponents on both sides. The above are the reasons that people against a minimum wage hike tend to list. However, especially among democrats, such an increase has pretty ardent support. The reasons that they cite as to why a 15.00 federal increase would benefit the nation:

• Improved worker satisfaction. Certainly, if workers are getting paid more, they are going to be happier. In turn, happier workers are more productive workers. When productivity goes up, business, in general, tends to follow suit. So in essence, this could be a very positive thing for small business owners.
• Lower worker turnover. Again, if employees are in a position in which they are not having to struggle despite having a full-time job, they are more willing to stay put. And with lower turnover rates, business owners ultimately save on the cost of hiring and training new employees.
• Some studies have uncovered that when the minimum wage has been raised at the state level, for instance, employment rates increase. Typically among big chain and box stores, they will often show increases in hiring numbers (depending on the state) when the minimum wage goes up.
• In today’s current climate a minimum wage increase would raise over one million households above the poverty level. The positive side to this is that they then are spending more and small businesses could potentially reap the benefits of this.

Again, numerous states and cities have instituted a 15.00 minimum wage — the results tend to vary. And in this difficult economic time, it is even harder to gauge and/or predict what could come of a federal minimum wage increase. The point of any such minimum wage policies most often has been to help less-skilled workers find employment and eventually up to their skill level. But again, the question here is how does this impact small businesses when many are currently already facing some dire straits. Labor costs go up, hiring rates tend to therefore go down. They don’t have the same cushion as big chain stores. Every penny, especially now, does in fact count.

Then again there is the flip side — every issue has two sides after all. Putting more money in people’s pockets could be a boon to small businesses. And not having to consistently hire people is also definitely a plus side note. Regardless, this is a relatively contentious debate. One that may not get resolved anytime soon.