Don't most small businesses benefit from an increase in minimum wage?

Question

In my opinion, most small businesses cater to the working class, restaraunts, small shops, etc., more money in their pockets allows them to spend on extras instead of paying basic bills only.

Answer 1

Hello again Rob...

I once owned a small business. And I’ve managed a larger business. In either case, you have a fixed amount of work to get done (labor hours) and a fixed labor budget (% of revenue).

In other words, if I have 10 entry-level workers (usually part-timers) working 20 hrs. per week @ $5.15 / hr. I'm paying $1,030 per week for that labor. If you cause me to have to pay 20% more per hour, I'll either raise prices enough to recapture the additional $206 or I'll lay off 2 workers and push for more productivity out of my surviving workforce.

If I raise prices, I'll probably lose market share to a competitor who doesn't have the same newly increased labor costs (e.g. Chinese imports)…bad choice

If I lay off 2 workers, how is society helped by a reduction in the number of entry level jobs?...also a bad choice.

Let's also understand what an entry-level job is. It's NOT a job intended to provide complete support for a family. Nobody who has that responsibility should be working 40 hrs. / wk. @ $5.15 per hour.

These are jobs for youngsters working after school, or adults who are only looking to supplement family income with a part time job. Where is it written that anyone working full time MUST be paid a wage that guarantees that they will not be poor, regardless of what type of work they choose to do?

You cannot legislate away the fact that some jobs are lower paying. You cannot say it's unfair to teach people that if you don't want to be poor, you'll have to become qualified to do a more responsible job.

If a person is functionally disabled, hopelessly unskilled and permanently unqualified for higher paying work, then we have plenty of local / state / federal and private safety net programs which will help these people. We the taxpayers already fund those programs.

Driving entry level jobs offshore (or to undocumented, illegal workers is not the answer). Driving employees to improve their job skills so they can be personally entitled to a higher wage IS the answer.

Paid work is not an entitlement program. It’s a competitive arena where you’re driven to make yourself more valuable so that you can earn your way to a better life.

Answer 2

Unfortunately they do not. At least not in a direct way.

If you owned a variety store and had 5 workers and paid them the minimum wage and congress raised the minimum wage by a dollar, you would be out $200 more dollars every week if they each work a 40 hour week.

Now, if you are asking if better-paid employees are better workers, I'll have to agree with you there.

Inflation is another thing you might be thinking of. If the owner (you) had to pay an added $200 per week, you might raise the prices of the goods in your store thereby passing on the higher employee wages to your customers. Still, how much can be passed on is a question that business owners have to deal with realistically. It gets into a question of a funky thing called "elasticity". What that means is that if customers have to have the product, the demand is inelastic and they will pay whatever you charge. (Think of food, you have to eat.) But if you are selling typical variety store items like lawn chairs, people will find a way to do without if you raise the price too much. So you can say demand for lawn chairs is "elastic".

So, in a way, raises in minimum wage may help the business owner but it's easier to say in general, they don't help the bottom line of revenue (sales) less expenses (wages) equals profit.

Answer 3

I would doubt it. Most small businesses cater not to the minimum wage earners but to the more affluent or business class. If there running restaurants, then they're paying waitresses wages and they work for tips. Small shops usually appeal to tourists and business travelers, while most of the working class shop at your wall mart's and K-marts. Better deals, lower prices. A raise in the minimum wage would hurt the small business owner, in my opinion.

Answer 4

But the small business man might also have to pay his workers more. Then he might have to cut hours to make up the difference. Then "the working class" has no more money than they did before.

And if I start a job at 5.65, work my way up to 7.50 after a year or so, then minimum wage goes up to 7.50, then I'd be making the same as the new hires. That just doesn't seem right, either!

Answer 5

An increase in the minimum wage means that a business owner has to increase the price of what he sells in order to maintain his labor cost. Doing this means that sales will decline. The business will shut down before to long. Who wins then?

Answer 6

I suppose in a trickle down kind of way.....but there is no guarantee that people will spend their money in a certain shop. If I was a small business owner, and forced to raise the wages of those that I employed...and sold a good that they didnt need/want/couldn't afford....I could go down very quickly....

Answer 7

Have you ever owned a business where you had to deal with these issues? I ask that because I too own a business and understand the problem. If you have not you are without the knowledge or understanding of owning a business to be able to disagree with the responce. You asked a question and someone who owned a business gave you an answer.

Answer 8

Small business=limited profit.
Higher minimum wage=less profit.
If the min wage goes up those of us making more than min wage make less money cause everything goes up to offset the loss of profit companies suffer. It makes inflation go up. See the connection.

Answer 9

The opposite is true. There would be less hiring of workers and less expansion.

Minimum wage was supposed to be just that, not the so-called "living wage" certain idealists prefer. That is why idealists cannot run a company. They would bankrupt it and everyone would lose (workers and customers).

Answer 10

I doubt it. most people that make minimum wage don't have disposable income to spend like that. above all, the increase in labor costs would hurt their profit margin...don't forget that employers would have to pay more in payroll taxes as well as just the wage increase. Any increases in sales due to your theory would probably be negated by increased labor costs.