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 (21-30)
It’s pretty simple. The only real minimum wage is zero, and every time we’ve elevated the arbitrarily mandated price floor for labor, more people have painfully come to realize this fact. So long as employers retain the right NOT to hire, those disqualified, by minimum wage, for work they would otherwise be willing to do will be paid nothing, because they won’t be doing it.
Literally every single time we’ve implemented a new, higher price floor, those most in need of a hand up suffer. They make less on the month. This has been done. It’s been tried. It’s been measured. Minimum wage has never, nor will it ever, increase anybody’s income, nor will it prevent it from falling. Ever.
Ultimately, consumers determine the value of labor, not the State, and workers determine the value of their time, not the State.
YES, raise it. I do understand the fear/resistance of small business owners, but they need only raise their prices to "fix" their monthly profitability: they will NOT be less competitive, as every one of their competitors will ALSO need to raise their prices.
Well, for every mandated increase in the minimum wage, another increase is waiting in the wings. It won’t stop at $15. I have seen it over the years increase and increase. $15 today, then 17 then 20 and so on and so on. It never stops. Leave it to the businesses based on their needs and ability to pay. If you are paying above 15 today, good for you. Some small businesses can’t afford 15. They will end up closing if it keeps increasing. There are more expenses associated with $15 like paying social security tax, Medicare tax, federal and state unemployment tax, medical insurance, and so forth. That $15 is more like $30 after you take into consideration all of the other associated expenses.
No impact at all for the $15/hour wage because already paying $20+ /hour. No point in having employees not able to buy my own products.
We must pay significantly higher than $15/hr plus benefits to attract qualified applicants. So this does not affect us. Beyond that, putting more money into the hands of the lower financial rungs of society immediately puts that money into circulation as these people must use their money to pay landlords, food suppliers, utilities, and so forth. They are not in a position to just buy stocks and bonds, which essentially removes the money from the daily economy. Low income people don’t eat at restaurants because they cannot afford it. If they bring home more money, they will go to restaurants and other service industry businesses, thereby increasing those sales, which provides the money to pay the $15/hr rate. Increasing the minimum wage pours water into the harbor to raise all boats. Also remember that this is not an immediate switch from $7.50 to $25, but a gradual increase over several years. As the Scottish say, “Dinna fasch.”
Anyone working full time deserves to earn enough money so that they are NOT in poverty. $15.00 an hour is LONG, LONG OVERDUE.
TRY LIVING ON $15.00 yourself sometime!
Whenever I need to hire an assistant, I ALWAYS pay much more than $15:00 per hour.
The way to look at this is simple. The proponents numbers are exaggerated, and there are opponents because they fear the costs.
The truths aren't as difficult as they appear. For example, take the popular target Walmart. They won't be hindered because they will adjust to the environment. They will increase automation, reducing the need for workers. So instead of having 10 cashiers on a shift, they will have 3. They will have 10 self checkouts requiring just 2 cashiers, and then just one full serve checkout. Gain for labor NEGATIVE. If they actually have a cost increase due to labor, that simply means higher prices to consumer. So it won't matter to Walmart because of their ability to reduce staff and charge higher prices because the competition will have the same cost increases which means Walmart is still cheapest retailer. Summation for those keeping score: Higher wages for those who are retained, minus the jobs lost, minus inflated prices. Totals: Marginal Gain at best, Zero sum gain most likely. AND THE LITTLE GUYS LACKING THE RESOURCES TO ADJUST? Nice working with you, but I bet you can sell that old store front sign to an antique shop in 50yrs. Keep it someplace safe.
Interesting comments. I agree it should be on a state by state basis. I know I would need to jack my pricing up and would not consider hiring anyone without prior experience. The thought of the minimum wage is not to raise a family but to provide an "entrance" into the working world. The idea to strive to do a better job and advance or move forward in your work and make more money and live better is being lost. Increasing the minimum wage to $15 across the country will destroy the small business concept and raise pricing for everything considerably. How about the congressmen live in the "real world" and not their make-believe fantasy land of power and
pay-offs!!
Westchester County in New York has been receiving annual minimum wage increases each year since 2016. We were at $9.00 and we are currently at $14.00. These increases have ranged from 7.6% to 11% each year. Small businesses have to pass this on to their customers in order to stay in business. We have one more planned increase to $15.00 an hour. If the rest of the country goes to $15.00, what do you think New York State will do?
When will it end? Of course the public will have to pay more for basic services and products.
This is absolutely horrible for small businesses and the trades. It will devastate the apprenticeship programs and overpay high schoolers on their first jobs.
Personally, I will lay off my helpers and not hire any more helpers. I can’t afford to pay $15 per hour for untrained and unskilled workers to do menial tasks and customers don’t want to pay that either. I will use technology and other means to get the job done.
I do agree the federal minimum wage should be increased but not beyond $9-10 per hour.