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You are watching: How does raising the minimum wage affect small businesses


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​Small businesses have actually been specifically hard hit throughout the COVID-19 pandemic. That"s why some think this is an inopportune time to pursue raising the federal minimum wage to $15 an hour by 2025, together Democrats in Congress have proposed. But advocates of the progressive the fairy Act say the lower-income employees have likewise been struggling throughout the pandemic and the commonwealth minimum wage is long overdue for an increase.

The introduction of the legislation resets the stage for debating the challenges and also benefits of increasing the minimum wage and also the impact the policy would have on small employers.

The federal minimum wage was last raised—to $7.25—in 2009. Just over 1 million employees earned earnings that were at or listed below the minimum wage in 2020, follow to the office of job Statistics.

A Trade-Off

The dilemma encountering federal lawmakers to be expressed by Rep. Dean Phillips, D-Minn., during a recent hearing top top the concern called through the home Committee on little Business.

"According come the Congressional budget plan Office, the will likely raise salaries for 27 million Americans, raise nearly a million world out the poverty and increase aggregate wages because that low-wage workers by over $300 billion over the next decade," the said. "Unfortunately, the exact same study likewise projects the this policy could cost 1.4 million jobs … and the lose of some small businesses." 

Phillips claimed he hears concerns from constituents prefer the owner the The initial Pancake residence in Plymouth, Minn. "Like so plenty of businesses which rely on public gathering to succeed, his is proper hanging on. His restaurant—like all restaurants—runs on thin margins during the finest of times, and he is deeply involved that a $15 minimum wage will average he will have actually to cut jobs if he hopes to remain open."

Rep. Elizabeth Ann valve Duyne, R-Texas, claimed she couldn"t think the anything an ext devastating to tiny businesses as they shot to recover from the economic effects of the pandemic. "Small-business owners have told me that increasing the minimum fairy will have actually a disastrous impact on them," she said. "Many stated they would have to close their doors immediately, and others claimed they would need to choose in between shutting down or replacing your workers through automation." 

Phillips said he believes over there are methods to "mitigate the an adverse impacts of such a plan while maximizing the positive impacts of raising wages for millions of Americans."

Job Losses, business Closures

Opponents of enhancing the minimum wage to $15 argue that it will certainly burden little businesses—which comprise 99 percent of every employers—with boosted labor costs and result in layoffs, expediting automation or going out of business.

"Employers cannot have actually their labor costs increase by approximately 100 percent without far-ranging disruptions to their operations," claimed Rachel Greszler, a research other at the Heritage foundation in Washington, D.C. "Responses to a $15 federal minimum fairy will vary depending upon their industries and also unique circumstances, however their choices include eliminating positions, cut employee hours, reduce benefits, automating or outsourcing jobs, or closing down."

Greszler added that even employers the middle-wage workers may be topic to wage pressure. "In order come attract and retain the employees they need, employers have to maintain a pecking order of wages based upon experience and productivity. They can not pay change managers the same rate as entry-level workers."

Ian MacLean, the owner that Highland Landscaping in Southlake, Texas, and also chair that the U.S. Chamber of Commerce small Business Council, stated his company"s lowest-wage earners currently make $11 per hour. "If the lowest-wage earners are increased to $15 every hour, every among my employees right now making $15 every hour or more would, justifiably, desire their hourly rates raised commensurate through their skills, experience and also tenure over the brand-new $15 every hour employees."

Greszler detailed that part employers will certainly respond to an increase in the minimum wage by replacing low-income workers v machines.

MacLean agreed that to mitigate the impacts of a minimum-wage hike to $15, "we would certainly fast-track automation solutions and also eliminate many of our entry-level and also lesser-skilled job positions."

"These tiny businesses room the exact same as households," Greszler said. "If us were confronted with paying twice the rent or double the mortgage, we would have to make adjustments. Small-business owners tell me the they"re taking out present of credit during this pandemic because they treatment so much about their workers and also they don"t want to lay them off."

Higher Retention, productivity

Proponents of the wage boost say the it will certainly return low-wage workers to a standard of living thought about the ceiling minimum years ago, transforming back the erosion the the value of the minimum wage after inflation.

Those make the commonwealth minimum wage currently make 30 percent much less in inflation-adjusted pay than federal minimum-wage employees did 53 year ago, said Heidi Shierholz, an elderly economist and director of plan at the financial Policy institute in Washington, D.C.

"Had the minimum wage retained pace with labor efficiency growth because 1968, the minimum wage would have actually been $21.69 in 2020, and also … would certainly be $23.53 in 2025," she said. "Affected workers who occupational year-round would certainly earn one extra $3,300 a year—enough to do a tremendous difference in the life of a supermarket clerk, home health and wellness aide or fast-food worker who today struggles to gain by on much less than $25,000 a year."

The advanced the fairy Act also indexes the minimum fairy to mean wages. "By developing regular, predictable rises to the minimum wage that are linked to as whole wage growth, the suggest legislation boosts the ability of the minimum wage to reduce inequality," Shierholz said. "A climb to $15 one hour would reverse decades of growing pay inequality between the lowest-paid workers and the center class, and indexing future boosts would prevent any kind of future expansion in that gap."

She added that multiple studies likewise show that a greater minimum wage would advantage employers by boosting morale and productivity and decreasing employee turnover and absenteeism.

That"s what punch Neapolitan Pizza co-owner man Puckett is counting on. The St. Paul, Minn.-based pizza chain at this time pays an typical of $13 per hour for beginning wages and also plans to move to $15 every hour through 2022, as directed by city mandate. 

"We"re do the efforts to number it out," Puckett stated of the influence of the climbing minimum fairy on his business. "One of our an essential business strategies has been come recruit and also hire the best employees, and central to the strategy has actually been paying an ext than ours competitors and well above legal minimums to ensure we attract and retain the ideal people," he said. "Employee retention is around two and fifty percent times longer than market average," that added.

Paying workers higher minimum salaries is a priority because that the agency but come at a cost, he said. "Our store-level labor price is significantly greater than market average. But due to the fact that our service strategy is not to maximize short-term profit, however to develop a agency that will last generations, us think the extra money we spend on labor is money well-spent."

Locality-Based Pay

Some on both political parties of the aisle agree the a single, nationwide commonwealth minimum wage might not it is in the finest solution. "Different areas with different economic conditions should not have the same wage policy," claimed Ryan Young, a senior fellow at the Competitive companies Institute in Washington, D.C.

That"s due to the fact that of the widely varying price of living throughout different components of the country. "In high-cost Manhattan, for example, these trade-offs may barely be clearly shows at a $15 minimum wage, due to the fact that wages there are currently in the range," Young said. "In smaller sized towns wherein costs and wages room lower, the trade-offs would be severe."

In Mississippi, for example, $15 per hour is the median wage. "Imposing a $15 minimum fairy on Mississippi would be like imposing a $35.74 minimum wage on Washington, D.C., the equivalent of more than $74,000 every year," Greszler said.

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She added that the finest solution would certainly be to usage a locality-based wage mechanism tied come the mean wage, taking care not come disproportionally influence lower-cost areas negatively.

"States and also cities are totally free to collection their very own policies, and also most currently have," Young said. "Twenty-nine states currently have minimum wages well above the present federal minimum, and also many cities have actually their own citywide minimum wages beyond state needs that don"t i have loaded on neighborhoods with lower living costs."