Minimum Wage: Helpful or Harmful to Small Business?
Back in September, California Governor Jerry Brown signed a bill that proposed to raise the state’s minimum wage to $10.00 an hour by January 2016. The first increase in hourly rate will take into effect next July 2014, raising minimum wage from $8.00 to $9.00 an hour. The governor declared that the legislation’s purpose was to help citizens struggling with difficult financial times. The primary goal of the bill was to look out for minimum wage employees and to keep up with rising costs.
Employees of corporations such as Target, Wal-Mart, and fast food franchises like McDonalds are demanding for higher wages to hike up from the current federal minimum of $7.25 to $15 an hour, according to USA Today. For employers working a full-time position at minimum wage positions, incomes will increase from about $4,000 per year to at least $25,000 per year.
For franchise owners, they aren’t too enthusiastic about the new bill. As Huffington Post reports, “For their part, fast food representatives say [franchise] eateries operate on thin profit margins, making it difficult for them to raise worker pay. In addition, they note that entry-level jobs are meant to be just that and that workers have many opportunities for advancement.”
Will this new bill be damaging for small businesses with smaller profit margins? Small businesses with less than 25 employees are exempt from this new law, but it calls into question for those employing more than 25 workers to match up the salaries of those businesses with bigger margins. Small businesses create jobs for people in the first place but increasing minimum wage can prevent them from creating more jobs to balance their costs.
For some small business employers who don’t find a problem with paying their skilled workforce more money may not feel any real debilitating threat, but for large businesses, such as corporate franchises that don’t demand such a skilled team, “might have little choice but to keep staffing at current levels and cough up more on payday.” (Chicago Tribune)
What’s dangerous for most businesses is the possibility that employers may find ways to cut the amount of workers and store hours to level on the affordability of increasing minimum wage. What’s interesting is that according to the Huffington Post, poll results have revealed that “85 percent of small businesses already pay their workers more than the minimum wage.” Perhaps the motivation to keep quality employees happy may be the reason for small business owners to dole out more pay, but there’s also consumer demand to meet, and “two-thirds of small business owners agree increasing minimum wage would make low-income consumers more likely to spend money.” So it seems as though small businesses have more of a reason to support the increase in minimum wage.
Or does it? For larger businesses that have exponentially higher profit margins, increase in minimum wage is less affected than those with smaller profit margins. The negatives about the increase in minimum wage will attack both small markets and corporate markets. At the end of the day, most businesses, big or small, aren’t too eager about the proposed increase of minimum wage and political regulations. As previously stated, small businesses will find themselves having to make up for losses of hours and laying off employees and eventually end up taking on more work themselves, thus preventing them from creating more jobs for both skilled and non-skilled laborers.