Minimum Wage of $10 is Maximum Headache for Small Businesses

Posted on April 22, 2014 by Dawn Fotopolos

The Real Cost of Minimum Wage Increase

Minimum Wage Increase Hurts Profits

Raising the minimum wage to $10 or more per hour puts a tremendous burden on small businesses. They’re already hurting from decreased revenues as households reduce spending due to high unemployment.

The Real Cost of Minimum Wage Increase

Most people don’t realize that when the government mandates small businesses take on additional full time labor costs, the true cost to the business is really 150% of the increase. Social security taxes, unemployment insurance costs, and payroll taxes are just a few of the added costs that must be paid on this increase. A $2.75 increase in minimum wager per hour costs the business more like $4.00 per hour.

Full Time Workers Will Lose Hours And Income

Why care? Because it will affect each and every one of us. According to a survey by the National Congressional Budget Office, if minimum wage is raised to $10.10 across the country, 500,000 jobs will be lost but it will put more money in the pockets of over 16 million workers.

That’s not what we’re hearing from the thousands of small business owners on Mainstreet who visit Best Small Biz each month.

First, the jobs that will be lost are full time jobs that currently have benefits.

Second, many of those jobs that are not lost will be converted to part time jobs with no benefits. The restaurant industry is going through this painful transition real time, according to Home Depot and Job Creators Network Foundation Founder Bernie Marcus.  The domino effect is that the business loses profits and cash flow so the owners cut their own salaries and the hours of full time workers just to avoid bankruptcy. These survival strategies are not what’s needed in a “jobless recovery”.

Third, a 30% rise in minimum wage robs the small business owners of the freedom to provide economic incentives to reward their highest performing workers. If new, inexperienced workers are earning the same hourly wage as those who earned that wage by learning the business and building long term relationships with customers, it destroys the incentive for workers to give best efforts. An employee’s performance and compensation are no longer correlated. If you want to know what that system looks like, ask the Russians.

Fewer Jobs and Fewer Full Time Jobs

Contrary to popular belief, raising minimum wage to $10.10 per hour does not put more money into the hands of millions of people. It siphons scarce resources away from the profits and cash flow of businesses that create jobs, which means fewer jobs overall. It also means fewer full time jobs so there’s less total income per household.

An example of this is a server working full time at a restaurant for 35 hours per week will probably have their hours reduced to below the full time mandate. Why? So the business to have adequate cash flow to stay in business.

That server will take home less total income due to this hourly wage increase. And they also will lose their benefits. The Affordable Care Act provisions will not compensate for this.

Fewer Businesses to Serve The Community

Many small businesses who speak to us at Best Small Biz tell us that they won’t be able to keep their doors open if this minimum wage is mandated in their state.

Small business owners will simply close their doors because taking on the enormous risks they do and working 16 hours a day with no return is not worth it anymore.

That drains availability of products and services we take for granted. This includes doctors, dentists and all types of healthcare workers.

Consumers will have fewer choices with less competition. Half a million lost jobs  means many businesses will be unable to serve their communities like they have for many years.

Our quality of life will be compromised in ways we can’t even imagine.

There’s Real Inflation- Raising Minimum Wage is Not the Answer

If raising the minimum wage is designed to solve the problem that the cost of living is getting more expensive, then the answer is not to raise minimum wage.

All this accomplishes is putting more depreciating dollars into the hands of fewer people.  The answer is to change monetary policy to support the purchasing power of the US Dollar.

If the central banks had the courage to do this, we would need fewer dollars to buy the goods and services we need to run our homes and to provide for the people we love.

As for the new minimum wage, it is a maximum headache for small business owners.

Professor Dawn Fotopulos, Associate Professor of Business, The King’s College, New York City”

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