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Is the Minimum Wage Rising? What Small Businesses Need to Know

What’s the chance that the minimum wage could rise? (The answer: “It depends.”) More importantly, what would it mean for your business if it did? Here’s the low-down to keep you up-to-date.


The Background:
A proposed increase to the federal minimum wage (currently $7.25 an hour) was defeated by a vote of 54 to 42 in the U.S. Senate on April 30. Bill S. 2223, which needed 60 votes to pass, would have raised the federal minimum wage to $10.10 by 2016 and permanently indexed it to inflation.

Democrats are using the Republicans’ opposition to the Senate bill to rally voters in the upcoming midterm November elections. And even some prominent Republicans, including former Presidential candidates Mitt Romney, Rick Santorum and Tim Pawlenty, are speaking out in favor of raising the federal minimum wage.


The Response:
How do small business owners feel about the minimum wage rising? The National Federation of Independent Business (NFIB) lobbied against the increase as anti-employer. “With increases to health care costs, higher taxes, more costly regulations, and now a dramatic minimum wage increase, small business owners simply can’t afford another excessive government mandate,” says NFIB Manager of Legislative Affairs Ashley Fingarson. “Raising the minimum wage will kill jobs and stifle economic output.”

The NFIB contends raising the minimum wage will have a disproportionate effect on the small business community, hurting the very people it’s supposed to help.

“A higher minimum wage will cost jobs, especially among young people,” contends NFIB Economist Bill Dunkelberg, noting that the teen unemployment rate is at a record high 25%. “Most people at or near the poverty line don’t work. If they want to work, a higher minimum wage will make it harder to get a job. The higher minimum wage is an incentive for [business] owners to find ways to reduce labor permanently by replacing employees with new technology.”

However, in a poll by the Small Business Majority, the majority of small business owners (57%) supported the minimum wage rising to $10.10 per hour in three stages over two and a half years and indexing it to the cost of living. Support was even higher among the retail and restaurant industries (61%), industries typically portrayed as being most opposed to an increase in the minimum wage.


The Reasoning:
Why do these small business owners support an increase in the minimum wage? More than half (52%) say it will help small business by giving local residents more money to spend. More than a third (35%) say it will make their businesses more competitive because competitors won’t be able to undercut them on labor costs. And the largest percentage (54%) say it’s simply the right thing to do and would enable low-wage workers to support themselves instead of relying on government services. A full-time minimum wage worker at today’s rate makes slightly more than $15,000 annually.

The Small Business Majority isn’t the only group with this view.

“Increasing the minimum wage will reduce the growing strain on our taxpayer-financed social safety net caused by poverty wages that leave workers unable to make ends meet despite working full time,” says Holly Sklar, director of Business for a Fair Minimum Wage. Sklar notes that, when adjusted for inflation, today’s minimum wage has one-third less buying power than it had in 1968. “Workers are also consumers, and businesses need customers who can afford their products. That’s what drives job creation.”

A new analysis from the nonpartisan Congressional Budget Office indicates that both sides have a point. The CBO says gradually raising the federal minimum wage to $10.10 would boost the incomes of most low-wage workers and lift 900,000 of them out of poverty. But it could also result in the loss of 500,000 jobs. The CBO also analyzed a proposal to raise the minimum wage to $9 per hour, which it estimated would cause the loss of 100,000 jobs while raising wages for 7.6 million workers.


The Reality:
Surprisingly. all of this rumbling about the minimum wage rising is moot for many small business owners. A whopping 82% of them already pay their employees more than the federal minimum wage.

And if your company is involved in federal contracting, an executive order signed by President Obama earlier this year requires you to pay minimum wage workers $10.10 an hour starting in 2015.

In addition, 26 states and the District of Columbia already have minimum wages higher than the federal minimum, according to the Department of Labor. And in Arkansas, Alaska, Massachusetts, Michigan and South Dakota, voters are gathering signatures to put initiatives on the ballot to boost their state minimum wages.

Urged by more than 180 business organizations and business owners, Maryland’s governor recently signed a minimum wage increase into law. Carmen Ortiz Larsen, owner of Aquas Inc. in Bethesda, Maryland, supported the increase.

“We hired entry-level people at near minimum wage in the past, [which] resulted in their personal financial problems impacting the quality of the work they produced and their ability to stay the course,” Ortiz Larsen says. “Today, our lowest wage is $10 an hour. My staff is more reliable, I have good retention rates, my corporate expenses have decreased, and I spend less time and money replacing and retraining staff.”

Even if your state doesn’t raise the minimum wage, your city might. The mayor of Seattle has announced a goal to raise the city’s minimum wage to $15 an hour, and the Los Angeles City Council is evaluating a plan to increase the minimum wage for hotel industry workers to $15.37 an hour.

Raising the federal minimum wage would help level the playing field for companies whose competitors are paying their workers less. With a recent Pew Poll year showing 73% of Americans approves of raising the minimum wage to $10.10 an hour, clearly, a groundswell is underway.

Rieva Lesonsky

Rieva Lesonsky

Contributor at Fundera
Rieva Lesonsky is a small business contributor for Fundera and CEO of GrowBiz Media, a media company. She has spent 30+ years covering, consulting and speaking to small businesses owners and entrepreneurs.
Rieva Lesonsky