Raising the federal minimum wage is currently a hot political topic.
On one hand, as the Chicago Tribune points out, proponents argue that it’s a matter of basic fairness to provide those on the lower end of the economic spectrum a decent living wage. In fact, the notion of a national minimum wage standard originated with federal legislation entitled the “Fair Labor Standards Act of 1938.” And keeping the minimum wage at the 2009 level of $7.25 an hour is unfair because it hasn’t accommodated the pace of inflation and rising living costs.
Indeed, the minimum wage set back in 1968 equates to $9.40 an hour in adjusted income. So today’s minimum wage workers are actually earning less; contributing to a growing class of working poor who remain below the poverty line despite their best efforts to stay employed, pay their bills and ultimately, contribute as consumers to the overall health of the economy.
The argument against raising the minimum wage says the opposite will happen: it will raise consumer prices and thus offset the earning power not only of the disadvantaged, but everyone else as well. Moreover, it will decrease the number of jobs and actually erect barriers to employment for the very people it is designed to help.
What Does It Mean for SMBs?
Not surprisingly, SMBs are similarly divided about how a higher minimum wage will affect their business.
A poll conducted by the American Sustainable Business Council (ASBC) found that 61 percent of small business owners favored gradually increasing the minimum wage to $10.10, and thereafter adjusting it yearly to reflect rising living costs. The majority of those surveyed agreed that a higher minimum wage would reduce employee turnover and increase productivity, which would benefit business with improved customer satisfaction.
SMBs that oppose lifting minimum wage levels argue the opposite will actually happen. Higher employee wages significantly increase the cost of doing business, which can only be offset by reducing hours and eliminating jobs, particularly in industries such as food service, which maintain there is little room to raise consumer prices.
Business CheatSheet points out that raising the minimum wage further incentivizes businesses to automate if human labor is no longer the cheaper option.
Walmart to the Rescue?
Nobody knows what is going to happen until it happens, of course. But it is particularly interesting that one of the biggest targets of organized labor and living wage advocates, Walmart, recently announced pay raises to a third of its workforce that amount to $1.75 above minimum wage. That means the average hourly pay for full-timers rises to about $13 an hour, and about $10 for part-timers. Walmart’s 1.3 million workforce is roughly divided evenly between full- and part-time workers.
What’s going on here when the very model of a low-paid workforce (which critics call near-poverty wages that are actually supported by taxpayers) takes a turn in the opposite direction? Forgetting economic and political theory, here’s why SMBs can stand to benefit from paying workers more:
- As the economy improves, more jobs are created. More jobs mean more options for job seekers, making it more difficult for employers to both find new employees and retain existing employees. Higher wages can help with both.
- What’s good for the goose has to be good for the gander. When big players such as Walmart and Aetna set higher wage standards, everyone else tends to have to fall in line.
- You get what you pay for. As Forbes points out, higher wages can reduce employee turnover and lower the costs of training and hiring. Walmart’s objective here is to increase worker retention and decrease churn. Which is what every business strives to do to increase profitability.