Real Talk: The Potential Impact of a $15 Minimum Wage

Business.com / Finances / Last Modified: February 22, 2017

Is a $15 minimum wage profitable in the long run? Experts say the raise is a tax on everyone, read to see who really benefit.

You’ve read the news: talk of a $15 minimum wage is in the air. So what does it mean for your business?

Adjusted for inflation, the current minimum wage is at the same level as it was in 1956 and reached its maximum inflation-adjusted value in 1968, when it was worth $10.89 in today's dollars, explains Aaron Pacitti, assistant professor of economics at Siena College in Loudonville, New York.

Had the 1968 minimum wage grown at the same rate as the cost of living, it would be $16 today. And if it grew in step with worker productivity, the minimum wage would be $22 today, triple its current level. Though it may indeed be time for a raise, business leaders are wary of too much change too fast.

Seattle, Washington recently passed a $15 minimum wage law and is testing the waters with new wages to begin incrementally in April. According to a recent piece published in the The Seattle Times, recent restaurant closures in the area are not due to the impending wage hike, though experts do expect that restaurants will have to raise their prices by 4 or 5 percent to absorb the new labor costs.

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Job Growth—or Not

There is little evidence that a higher minimum wage will create more unemployment as states with a minimum wage higher than the Federal minimum have experienced faster rates of job growth than other states.

Not everyone agrees with this assessment, however. “As a business owner, my biggest expense is labor,” says Brett Bastian, CEO of Blast Moba in Salt Lake City, Utah. “Increasing minimum wage from $7.25 to $15 is doubling it. This is a huge burden to businesses but the cost will get pasted on to consumers. I have a business partner who said he will have to increase his prices by 40 percent if it happens.”

Bastian believes businesses are going to look to outsource to foreign countries with competitive wages or replace employees with technology. He points to McDonalds planning to replace cashiers with computers. “The loss of jobs and the cost of living increase will only hurt our economy, not help it,” he says.

Related Article: The Walmart Solution: Raise the Minimum Wage?

A Gig Economy

Some see an increased minimum wage as the path to a gig economy with fewer full time workers on the company payroll.

“We're based just outside of San Francisco, so we're accustomed to higher than average wages,” says Mark Aselstine, proprietor of Uncorked Ventures, a wine of the month club. “It's made us change some steps while we're growing our startup. One of the first things that an online business does is to hire customer service reps."

"We've eschewed that idea for the time being, largely because we'd be looking at a significant investment for a single customer service rep. Instead, we use more independent contractors or hire outside companies to do some of the heavy lifting.”

Aselstine is certain that higher minimum wages affect the way companies hire for some jobs and leads to more of the “gig” economy built not around full time jobs but freelance opportunities and contract work.

Childcare and the Minimum Wage

Raising the minimum wage could present challenges for parents. Ginny Trierweiler, Ph.D., founder of Mastering Mission, shares her perspective as the former CEO of an early childhood education program, licensed as a day care: “I will say that I am supportive of raising the minimum wage to a living wage. However, day care presents a particular problem. A large percentage of day care staff tend to be paid poverty wages, yet the cost of care is high, especially for infants and often very burdensome for parents.”

Trierweiler explains that if the minimum wage were raised, the cost of day care would go up. She estimates the wage expenses, which represent the majority of the day care expenses, would increase more than 20 percent.

“Unless the government and the taxpayers stepped up to fill in the gaps in increased day care costs, parents would have to pay substantially more,” she cautions. “Otherwise, programs would go out of business and working parents would find it even more difficult to find day care for their children.”

Better Wages, Better Talent

Some companies look not to current law but to market forces when they set wages.

“We believe that in order to attract talent you must attract talent from outside cities,” says Brian Jones is the Director of Public Affairs at Zeeto in San Diego, California. “We even pay our interns $14.50 per hour. The more companies paying these increased wages will only help attract young talent to your city—which will be a benefit for all.”

Jones believes that when people feel appreciated they tend to work harder: “Productivity goes up, as well as moral. Employees buy in to the company—and that is priceless.”

Related Article: Why Company Culture Matters More to Employee Than Pay

Pros and Cons

According to Dr. Pacitti, inflation would likely less than 1 percentage point per year in the wake of a $15 minimum wage. “Firms could accept lower profits to offset any inflationary impact. To the extent there is some small positive affect on inflation, it would be good for the economy because wages have been flat for decades. This would be a very small cost to reduce inequality and poverty, problems that have been plaguing and adversely affecting the economy for decades.”

The National Employment Law Project reports that many cities have moved to adopt higher minimum wages recently. In addition to Seattle, these include Chicago, Los Angeles, Oakland and Richmond. According to a recent report by CBS News, the shift is harder on small business owners, many of whom are trying to figure out ways to generate additional income.

“If a business has to pay more for anything, gasoline, produce, labor—they have to raise their prices or they have to cut costs, plain and simple,” says Tom Scarda, a Certified Franchise Consultant. “The business owner is forced to use less gas, skimp on the lettuce or cut staff.”

Scarda says that the downside to a $15 minimum wage is that some minimum wage earners will lose their jobs or have their hours cut. Or, we all will be paying more for our provisions. In essence, a $15 minimum wage is a tax on everyone, but the upside is that the worker will have more money to buy things for their family that adds to the economy.

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