Raising the Minimum Wage Bad for Small Businesses
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President Obama is asking congress to raise the minimum wage (MW) to $10.10 an hour, from $7.25. The appeal has taken place only months after Gov. Jerry Brown of California signed a bill to raise the MW in California to $10 an hour in 2016.
Although it is easy to think of a MW increase as a benefit on the surface, it is not that simple. The increase, alongside at least two state proposals, will only harm small businesses, and reduce the amount of full or part-time jobs.
President Obama is asking congress to raise the minimum wage (MW) to $10.10 an hour, from $7.25. The appeal has taken place only months after Gov. Jerry Brown of California signed a bill to raise the MW in California to $10 an hour in 2016.
Although it is easy to think of a MW increase as a benefit on the surface, it is not that simple. The increase, alongside at least two state proposals, will only harm small businesses, and reduce the amount of full or part-time jobs.
At the same time, it looks as though Seattle will be raising their minimum wage to approximately $15 an hour. The move, supported by labor unions and liberals, would boost the wage floor to the highest level in the nation. Similarly, some Los Angeles city council members are planning to introduce a proposal to increase the MW for city-hotel workers to $15.37 an hour.
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The Negatives of a Forced Wage Increase
Proponents everywhere are gushing about the benefits of living wages, but it seems that only the opponents bother to consider real economic research and logic. These individuals warn about the harm to small businesses and increases in unemployment likely to follow a MW hike. The politicians in Seattle only need to venture a few miles away to catch a glimpse of the damage that a $15 an hour MW could do for instance.
A district of Seattle – SeaTac, recently made the decision to increase their minimum wage to $15 an hour. Since then, United Liberty – a watchdog group, has reported that employers have had to cut employee benefits simply to stay in business. According to workers, employers cut their 401(k), health insurance, and paid vacation time to support the higher pay.
Businesses are at a Disadvantage
State and city-imposed MWs are placing a competitive disadvantage on small businesses. Businesses in states with higher MW often struggle to compete with similar companies in other, lower-wage states. Driving up wages can force businesses to move to states such as Texas, where the minimum wage remains at $7.25.
In December 2014, the unemployment rate in Texas was only 6%, far beneath the national average of 6.7%. At the same time, in California, the unemployment rate was 8.7%. California also fell below Texas in job growth in 2014.
In most cases, small businesses in California that employ 52% of all workers, are not equipped to handle the costs of higher labor prices. For small businesses, the cost of hiring new employees (unskilled workers) at an increased MW is potentially devastating. This is also making it difficult for so many teenagers in America to find a job.
Many new jobs created in response to the wage hike are likely to be part-time positions. As the cost of labor continues to rise and economic conditions stagnate, hiring part-time workers will be more cost-effective though in many cases, no hires will occur. In addition, increasing the MW will not improve the economy, or the lives of the people living in these wage-boosted cities or states.
Not Worth that Much
If increasing the MW helped to improve the lives of unskilled workers, then make the hourly rate $30. The point is to let market forces, not the government, decide fair wages.
