In fact, in this quarter’s survey, 57% of all small business owners say these minimum wage increases will have no impact at all on their business in 2020, indicating that they can absorb the cost of the wage increase, sustain any loss in profits and find ways to raise revenue to compensate for the increase on their balance sheets. Or perhaps many were always paying their workers above the minimum wage even before the change was made.
The risk of a wage increase is that it will be set too far above the hourly rate that employers can afford to pay their employees, forcing them to lay off workers if they can’t offset that cost in some other way. Small businesses typically have smaller profit margins and fewer ways to reallocate funds if their business model suddenly changes.
But with these wage increases coming at a time of near-record unemployment and steady national GDP growth — not to mention great confidence among small business owners, specifically — few small business owners are complaining about the wage boost. Perhaps more significantly, even those who expect a business impact thanks to the change only rarely say they will cut headcount as a result.
Just 8% of small business owners say they will be forced to lay off workers as a result of the higher minimum wage, while 14% say they will be forced to cut worker hours, 14% say the higher minimum wage will result in less revenue for their business and 22% say it will result in less profit for them.
“The best evidence is that judiciously set minimum wages make a lot of sense. They raise earnings, reduce individual and family poverty, and have no measurable negative effects on employment,” said David Autor, an economics professor at MIT and co-chair of the MIT Task Force on the Work of the Future.
A report last year by the Congressional Budget Office found that a $15 minimum wage would increase the income of 27 million workers, 17 million of whom currently earn below that amount with the remaining 10 million earning just over $15 an hour, but all of whom would see their wages rise due to what economists call the “spillover effect.”
When adjusted for inflation, today’s minimum wage gives workers far less buying power than it once did. Since peaking 52 years ago, purchasing power of the minimum wage has fallen by 31 percent — the equivalent of $6,800 for someone working full-time at minimum wage for a year.
It’s not uncommon to hear that minimum wage increases have disastrous consequences, particularly for small businesses. However, economic research into the impact of minimum wage hikes on small businesses suggests that not only are increases not harmful, they might even be beneficial.
Research from the Fiscal Policy Institute examined three years of small business activity in states that increased the minimum wage above federal standards as well as states that did not. These were some of the researchers’ findings:
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From 1998 to 2001, the number of small business establishments grew at a rate of 3.1% in states with higher minimum wages, compared with a rate of 1.6% in states with lower minimum wages.
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Employment grew 1.5% more quickly in states with higher minimum wages.
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Annual payroll and average payroll per worker increased more quickly in states with higher minimum wages.