Shanu Singh Guliani

How Does the Minimum Wage Increase Affect Small Businesses?
June 25, 2007

According to the Labor Department, roughly 2 million workers nationwide are paid the federal minimum wage or less, making up 2.7 percent of all hourly-paid workers. Half are below 25 years old, while four percent are 65 years and older.

In my opinion, small businesses are small due to finances, and when the minimum wage gets hiked way above the federal floor, these businesses are either going to have to start laying off employees or shut down completely.

Many labor economists have argued that the minimum-wage increase does indirectly affect employment rates. Instead of immediately causing greater unemployment, for every 10% increase in the minimum wage, there’s a 1% “disemployment” that happens. Employers might not hire as many people, or they might eventually boost their troubled bottom line by sacrificing some of their labor costs. I understand people can’t live on $5.15 an hour, so maybe it is best to raise the wage, regardless of the possible negative outcomes—but I do think if the minimum wage gets too high we’ll be excluding people from the labor market that do not have the experience or the skills.

From the small business side—Of the 1,000 small-business owners surveyed in December by Discovery Financial Services, 70 percent said raising the federal minimum wage would have little impact on their labor costs, suggesting few employed minimum-wage workers.

Posted by Shanu Singh Guliani on June 25, 2007 | Comments (0)