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 (1-10)
Minimum wage was not, and should not be, intended to be a "living wage"
Wages are best determined by market demand. If a company needs a skill set highly in demand they will have to pay more for that skill set. If a person wants a higher wage they can do what is necessary to learnn/have a skill set that pays more.
While my plan was to pay more than minimum wage for entry level positions, the $15 minimum will eliminate adding those position.
Worse, I have clients that were about to embark on pursuing their dreams and start new businesses. While their plan included wages higher than the current minimum, the business cannot-will not be able to afford $15 per hour at startup.
Therefore, the startups are on hold. If $15 passes or is anticipated to pass then those businesses will not exist, jobs won't be created, and opportunities for the entrepreneurs and their future employees won't exist.
While the talking point may sound great the cost far outweighs the benefit.
Not smart. From all angles and aspects, raise that price and the prices of everything else will be forced to go up as well leading to a larger gap between the poor and middle-class, leaving even fewer options during a pandemic of all things.
This is anecdotal, perhaps, but we are a small business of only 15 people. We hire all of our employees well above minimum wage so that they can afford a life for themselves. The result is a loyal team with a good work ethic as well as low turnover.
Every city that did 15 is a disaster, unemployement, closed businesses and vacant retail properties
One simple question: could YOU survive on less than $15/hr?
That comes to $600/week, before taxes
I already pay my people a living wage. Not a problem at all. Others can talk about job-killing, but I prefer to not kill my employees as consumers so that they can support my advertisers.
The main problem with an $x/hr national minimum wage, is that the cost of living is different across the nation. For example, in rural areas, the cost of living is generally a lot less than in urban areas where rent is so much higher. If there is going to be a minimum wage, in my opinion it should be almost county based since there's such a large variation in the cost of living. Alternatively, there could also be no minimum wage and businesses can compete to provide the best wages. I don't know all the answers, but a blanket national minimum wage doesn't seem like a great idea.
Will a $15 min wage pull anyone out of poverty? No. As the wage goes up, so will prices until the spending power of $15 is the same as $7.25 is now. Raising min wage does not help those at minimum wage, it only hurts those above it by lowering their purchasing power. Will this affect me. Not in the short run, I don't have employees. In the long run however, it just means I will probably never employ anyone.
As a Massachusetts employer, I saw the $15 minimum wage coming years ago. I notified my partners that I would be setting a base wage of $15 in 2015, before MA went there. My employees are loyal & happy in their jobs. This is part of my marketing plan. Payroll DID increase quite a bit, as more tenured employees got raises in the whole pay scale change. But is has been a good thing all in all. Yes, labor costs have gone up substantially in the past 6 years, but we could afford it then, and hope to be able to resume affording it in the months to come.
For on our farm, 15/hour would crush us. Some folks are worth it and make it work, but those (especially just starting out) won’t be “pulling their weight” to deserve such. This will just drive inflation up- very sad and shortsighted.