Minimum Wage Hike: Will It Help Or Hurt?
A national minimum wage increase is on the table for 2021, embedded within the $1.9B coronavirus relief legislation, leaving many small business owners conflicted about what that means for their recovery and revenue. This is a complex issue, one we urge legislators to fully understand before enacting, because it has the potential to negatively impact many small business owners who are fighting for their survival.
Ultimately, we want what’s best for all small businesses, which means ensuring that decision-makers hear your opinions and insights to see the whole picture and vital details.
Minimum Wage Hike: Economy Boost or SMB Bust?
Below, you’ll find an in-depth look into the complexity of a blanket minimum-wage increase, from those who are worried their businesses won’t survive it, to those who believe paying livable wages has more benefits than downsides.
We’ll also examine the various effects it might have on specific industries, and how an increase could potentially be funded on a government level.
Then we’d like you to chime in with other points that you need your legislators to understand. Tell us how an increase might make a difference for you and we’ll make sure policymakers hear what you and other small business owners are saying.
Details Behind The Proposed Wage Increase
Let’s start by looking closely at what’s being proposed.
President Biden wants a gradual increase of the federal minimum wage from $7.25 to $15/hour, between now and 2025.
He’s also proposing the tipped minimum wage allowance be removed for service industries, banning restaurants and the like from paying employees below minimum wage.
Both of these measures have attracted vehement advocates and critics.
Lifting People Out Of Poverty
If passed, this would mark the first federal minimum wage increase in over a decade.
Ultimately, the stated goal of the wage increase is to ensure that Americans are being paid a living wage, where a full-time worker can afford rent, food and other essentials.
Proponents of the increase predict that, once it’s enacted, it would lift 1.3 million Americans out of poverty.
Supporters also point out that many essential workers are currently being paid a “non-livable wage,” and that the raise would demonstrate the country’s appreciation for their crucial work.
The hope is that over time, it will result in overall economic recovery, by giving workers money to spend at local businesses.
Quite A Jolt Predicted For Key SMBs?
We turned to our members to find out what real small businesses owners are saying about the proposed legislation. Results are based on an Alignable poll conducted last week (2/13-2/17/21) among 5,089 small business owners.
- 51% of small business owners say that if passed, the $15/hr minimum wage legislation will have a negative impact on their business.
- 35% of those respondents predict that the negative impact will be significant.
It’s important to note, many small business owners already pay employees well above minimum wage -- 42% of those surveyed said they would not be affected by the legislation for that reason.
The remaining 7% of business owners believed that the minimum wage increase would be good for business, citing an overall boost in economic health as the reason. In fact, 18% of minority-owned small businesses predict the minimum wage increase would have a positive impact on their businesses and their communities.
Kicking Restaurants When They’re Down?
Members of the restaurant industry, already devastated by the events of the past year, feel this legislation could be the death knell for many restaurants.
The removal of the “tip credit” allowance, which made minimum wage exceptions for employees to account for the tips they received from customers, has restaurant owners scared for the future.
One restaurant owner who took our survey echoes the sentiments of 64% of his peers. He feels that the tip credit removal will be the final nail in the coffin of an industry that has already faced so much hardship.
“We already pay our non-tipped employees more than $15 per hour. What will crush us is paying tipped employees $15 an hour and removing the tip credit. That’s game over. We would have to fire the servers and put iPads on the tables. It’s the only way to survive. We already pay our servers $8 an hour, but $15? This will be the end of the restaurant business.”
CEO of the Massachusetts Restaurant Association agrees, adding that “Tip credit is the critical fight. It works and should never change. But the immediate piece is that the Wage Act should not try to be pushed through under reconciliation as there is no chance to change anything. In fact, I believe it is not even allowed to be considered in reconciliation.”
What Would Happen To Already-Devastated Retailers?
Another industry disproportionately targeted by this legislation is retail. There are two facts of modern life that retailers wish legislators had taken into account prior to pushing forward with what many of them consider reckless legislation: vast differences in the cost-of-living across the country, and the fact that many teens and young adults find their first jobs at retail businesses. We asked Ken Giddon, owner of New York City-based men’s retailer Rothmans, for his perspective.
“A single minimum wage for the entire country is a flawed idea,” Giddon told us. “The cost of living is so dramatically different by region. I do believe in a minimum wage, but it should be decided on a state by state system.”
He added that he believes in an age- based system. “There should be one minimum wage for those under 21 years old and another one for people over 21 years old. That way, businesses like mine can add part-time and summer help without breaking the bank. It also deals with the living wage issue, as younger folks are generally not supporting a family, but primarily supporting themselves.”
Can The Feds Help In Other Ways?
While few argue against paying employees a liveable wage, it is easier said than done for many business owners especially in the midst of a pandemic. Several unanswered questions remain, including:
- Is it possible for the federal government to partially subsidize this wage increase in the short-term, while businesses get back on their feet?
- Are there alternatives to raising the minimum wage that still allow for employees to make a living?
- Is this really the best timing for this legislation, as it could limit employment opportunities as restaurants and retailers try to get back on their feet in the next year or two. If they are mandated to pay higher wages, naturally they’ll hire fewer people.
Many argue that an expanded EITC (earned income tax credit), that subsidizes the difference between current and raised minimum wage, could help make that dream a reality.
What’s Your Take?
Clearly, this is a challenging issue to resolve and small business owners have a wide variety of opinions from “we’re already paying well above $15/hour” to “eliminating the tip credit could ruin my business.” Regardless of your position, we hope you’ll reach out to your elected officials and share your perspectives, so they fully understand its impact.
At the same time, we invite you to share your perspective below in the comment section, so we can share this article and your sentiments with the press and legislative contacts we engage with regularly on behalf of our members. With your help, we all can make a difference. #StrongerTogether
Comments (11-20)
A minimum wage job is a entry level job for high school & college kids. Its not a career job or wage. If the minimum wage goes to $15 it would put me out of business or I would have to do everything because I could not afford to pay that much. My other option would be to raise my prices but that would make my customers go to shop online to the bigger businesses that can afford to pay the higher minimum wage. My father told me always work hard for anyone that is paying you to do a job if you do not like it or are not making enough find something different or better. I think the bigger companies like Wal Mart or Amazon should have better wages but by raising the minimum wage you hurt the smaller business like mine and help the bigger companies. It would destroy small businesses and help the big companies because they would have less or no competition if this happens. Plus we are still trying to recover from Covid and getting shut down for a couple of months and building everything back up.
- The proposed increase is graduated over a period of time; it won't be $15.00 effective January 1!
- Even five to ten years ago $15/hour was not a liveable wage for a full-time worker. Even in the most rural areas it would not include enough money for more than the USDA thrifty meal plan food allowance, and that calculation is years and years behind current food and grocery trends.
- Not all of the 21 states that currently maintain the $7.25 minimum wage are low cost areas of the country - I know because I happen to live in one of them in the relatively expensive Northeast.
- Restaurants - stop whining. Those of us who can afford to enjoy dining out would just as willingly pay for a higher meal cost to offset what we would have paid in tips. Research bears this out..
- If any business owner or consumer needs to be reminded of where we would be without all of the low-income front-line essential workers - grocery store clerks, CNAs, LNAs and housekeeping staff in our nursing homes and hospitals, etc. well then just shame on you.
- Consider how many of these low-income front-line essential workers are more nimble and flexible and efficient than most of the whining business owners/management acknowledge.
Let's show everyone some respect and dignity. $15.00/hour is just a STARTING POINT. Now let's add universal health care, sick days, safe working conditions. Dignity and respect for everyone. A living wage is the minimum place we can start.
If it would indeed raise people out of poverty it would be considered--But-we know it will not-- because it never has--and it would keep some who might start on their way with their first job begin to get out of poverty-it would defiantly affect teen agers looking for summer work--and those jobs defiantly help people learn a work ethic -valuable all their lives--The better way out of poverty is to get training for a better job and there are programs available--many companies will train-As a restrurant owner for 18 yrs--always took on a couple of kids each summer--some every summer until they graduated--some actually got raises because they were good employees-those raises gave them incentive to learn new things etc-
I rather like the idea of an age based system. As a very small campground, a $15 per hour employee does not produce enough to make it worth hiring them. Furthermore, we would be able to hire young people under age 21 for summer work. However, a 17 or 18 year old does not have enough work experience to be worth $15 per hour. Basically, you are asking me to take an untrained youth with no work experience and often learning some kind of work ethic, and train them at my expense and plus pay them what an older more experienced worker would get paid. I will never hire full time help because we don't need it. We are a seasonal business closed in winter. Our first couple of months and last couple of months are slow. And I only need part time help in summer doing things like mowing the lawn and cleaning bathhouses (neither of which is skilled labor). Thus, paying someone $15 per hour who is less than age 21 makes no financial sense for my business. I think age based, and with very small businesses exempt - makes the most sense.
We start our file clerk/assistant position at $15.00 per hour and assuming performance is good, they get an additional raise of $1.00 an hour each year up to $25.00 per hour. Our current file clerk makes $21.00 an hour. The investment in training and retention makes it worth while. It has also helped us retain our file clerk. Everyone deserves a reasonable living wage.
We are already at $14.77 minimum wage in the City of Denver, heading to $15 on July 1st and $15.87 on January 1st, 2022. When this passed, it would have put Denver among the highest minimum wage cities in the Nation. We have adapted to this but it has undoubtedly hurt our business in-terms of number employed and profitability. In 2017 we employed between 25-32 people with Spring/Summer being our seasonal peak. Since 2017 we employ between 18-25. This is a direct result of our need to keep payroll at a consistent percentage of sales to remain profitable. We have passed along some price increases to our customers to make-up for these wage increases but that does not make up the differential. We have also significantly tightened our wage bands - the difference between the highest and lowest paid employees - out of necessity. This definitely hurts the high achievers and rewards the mediocre achievers. The high minimum wage also severely hurts younger people, first-time workers and students who no longer have as many job opportunities. The minimum wage should not be a "living wage" but rather an entry-level wage allowing people to get their foot in the door and then work hard and move up. My 2-cents.
Heck, let's make it 30 an hour. Otherwise, we'll have illiterate millennials who can't afford the latest iPhones. Think of the children.
The minimum wage is for people just starting out with no experience or with lower entry jobs that require no education. I employ high school students that are living with their parents and pay them a little higher then min wage. Entry positions or non educational positions should not start at $15.00 an hour. Why would anyone want to educate themselves further? Business owners have to meet a percentage of revenue for payroll. If wage minimums go up - hours will be cut, less people will be hired. It is a financial decision that has to be made. In the end less people will want to open businesses. The work is too hard to own a business and break even. You have to be logical not emotional. Like I have always told my children Emotions are the caboose of the train, not the engine. It will hurt the small towns, small businesses more then anyone. I only see a downward spiral to the entire idea.
The minimum wage needs to go up. There's no place in the US you can live on such a wage. I support the $15 increase to make up for decades of inflation.
Raising the minimum wage to $15 will create short term chaos for some, but it will be fine. Just fine for businesses and much better for low wage workers. I ran a business with 75 employees for 25 years.