Is a $15 Minimum Wage Good for Small Business?

By Andreas Rivera
Business.com / Finances / Last Modified: March 5, 2018
Image credit: Andrey_Popov/Shutterstock

Is a $15 minimum wage profitable in the long run? For small businesses, the raise may cause more problems than it solves.

The prospect of a $15 minimum wage has been a topic of discussion for several years. This year, several states that have made it a goal to incrementally raise minimum wages took one step further. Minimum wage increases went into effect Jan. 1 in Arizona, California, Colorado, Hawaii, Maine, Michigan, New York, Rhode Island, Washington and Vermont, according to Business for a Fair Minimum Wage.

Government mandated minimum wage increases continue to be a highly discussed economic issue, with plenty of business leaders both for and against. 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, explained Aaron Pacitti, assistant professor of economics at Siena College.

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. [Read related article: Best Time and Attendance Services and Software]

Job growth – or not?

Many small business owners aren't keen on a mandated minimum wage raise, and say doing so would force them to pass on the rise of labor costs to consumers.

Zach Hendrix, co-founder of lawncare company GreenPal, says he's talked with several of other businesses owners and that many agree that a minimum wage increase will create more problems than it would solve, including for his business.

"They will have no choice but to raise their prices," Hendrix said. "The problem with this is that a lawnmowing is only worth so much to a homeowner. It is demand-elastic, meaning if the price goes up demand will plummet." [Read related article: Are You Paying a Living Wage?]

A greater shift toward 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, founder of Uncorked Ventures, a wine subscription club. "It's made us change some steps while we're growing our startup."

For example, in a 2015 interview with Business.com, Aselstine noted that his company had avoided hiring full-time, in-house customer service representatives due to the high investment. Instead, they favored independent contractors or hiring outside companies to do some of the heavy lifting.

Aselstine said 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. and founder of Mastering Mission, shared her perspective as the former CEO of an early childhood education program, licensed as a day care: "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."

Restaurants and tip wages

In the restaurant industry, where many workers rely on tips, the minimum wage increase is also having an effect.

"The cost of business continues to rise in the restaurant industry and there is only so much you can charge for a burger or a bowl of pasta to cover the increase," said Andrew Rigie, executive director of the NYC Hospitality Alliance. "In New York, since the tip wage was increased by 50 percent in 2015, annual employment growth in full service New York City restaurants dropped from 5.5 percent to less than 2 percent. In the fast-casual sector employment growth was chopped from 6.5 percent to less than 3.5 percent. There is something happening in the industry and we should all take notice."

Rigie says restaurants in New York would like to share tips with back of the house kitchen workers, to help increase their wages.

Better wages, better talent

Some companies look to current laws and market forces when they set wages. The nature of minimum wage jobs has the potential to change to make it worth it to business owners, suggests Aselstine. He uses seasonal workers to pack boxes and do general warehouse work.

"Is $15 [an hour] enough for me to pack all the boxes myself? No, not even close," Aselstine said. "But, it does change my long-term outlook. I might be more willing to hire someone that does some other stuff, that I also ask to pack some boxes occasionally, instead of having someone only pack boxes."

The long-term impact

According to Pacitti, inflation would likely increase less than 1 percentage point per year in the wake of a $15 minimum wage. He noted that firms could accept lower profits to offset any inflationary impact.

"There is some small positive affect on inflation," Pacitti said. "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."

Tom Scarda, a certified franchise consultant, said 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 themselves and their family, which adds to the economy.

Some source interviews were conducted for a previous version of this article.

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