April 20, 2017

What a Minimum Wage Increase Means for Small Business Owners

At the start of 2017, minimum wages were raised in 19 states, with Illinois and North Carolina still debating the issue. Currently, the highest minimum wages apply in the states of Washington and Massachusetts ($11/hour), while Washington DC leads the country ($11.50/hour). As of now, the federal minimum wage is $7.25. Due to both employees and business owners’ needs, we’ve written this post to further explore recent and future wage increases and their effect on the small business community.

Conflicting opinions over minimum wage increases

This battle over a national minimum wage is playing out across the nation. For example, Democrats in Illinois are pursuing a minimum wage increase to $15/hour by 2022. At the same time, Republicans in Florida are opposing a higher minimum wage. Florida State Representative C.D. Davidsmeyer recently pointed out that “the higher you raise wages, the fewer people you have working.” Democrats are also offering suggestions to help protect small businesses. State Representative Will Guzzardi of Chicago proposes a tax credit to offset the higher wages paid to employees. Others believe that the higher minimum would force small businesses to replace full-time employees with part-timers to avoid liabilities involving health care insurance. Of course, business owners don’t want to lay off their valued employees due to a wage increase. On the other side, many of these workers can’t survive on their current wages, and could use the extra cash. It is clear to see why political parties are split on this widely-debated issue.

What small business owners think about the issue

Small business owners aren’t universally in agreement on wage increases, either. A new survey from BizBuySell discovered that 47 percent of small business owners favored a higher minimum wage, while 40 percent are opposed. In the past five years, 53 percent of business owners have withstood a state or local minimum wage hike, 30 percent haven’t and 17 percent were unsure. Of course, different industries and geographic areas will be more or less affected by minimum wage hikes. Due to this, it is not surprising that business owners aren’t in solidarity about the topic, as their individual businesses will be influenced differently.

No Easy Answers

In 2015, The University of Washington conducted a study measuring the impact of a minimum wage increase in the Seattle region. Among its finding was that businesses that depended on low-paid workers, although benefiting from strong economic conditions, cut back on labor to one extra hour per employee per week. This was relative to businesses outside the Seattle area. In addition, lower-paid worked received higher paychecks, but only 25 percent of the additional take-home page was due to the wage hike. Otherwise, it was attributed to the strong economy at the time. Professor Jacob Vigdor, one of the study’s leaders, concluded after the minimum wage increase that the results were neither as negative or as positive as different sides had anticipated.  Overall, it’s evident that in Seattle’s case, a minimum wage hike can bring both positive and negative outcomes. In summary, the minimum wage increase debate will continue, with neither side likely able to dominate the high moral ground. The strong economy may be masking the deleterious effects of a higher minimum wage, and these impacts may become apparent if the economy declines.