The debate over increasing minimum wage continues as the Federal government, states and private companies evaluate the practical and economic impact of the move. Make no mistake; raising the minimum wage will have a definite impact on millions of US workers as well as the companies employing them. The critical question is will the benefits of a mandatory minimum wage increase result in unintended consequences, especially for small businesses? Will or could the increase result in disadvantages for segments of our economy still struggling to rebound from the recent economic downturn? Could a mandatory increase, which appears on the surface to be a much needed economic boost, result in more hardship for other already overburdened business sectors?
Hundreds of articles, blogs and opinions have been written as experts and the general public weighs in with both facts and fiction. Although no one seems to have all the answers, here are some facts that we do know:
- The Federal government has not raised the minimum wage since 2009 when it was raised to from $6.55 to $7.25.
- The inflation rate has increased no less than 2% per year in each year since the increase (at 2% inflation per year the minimum wage worker has lost $.12 per hour for every hour worked in 2015 as compared to 2009).
- Since 2011, Wal-Mart, one of the Nation’s largest minimum wage employers have increased its revenue from approximately $107 BILLION to $120.6 BILLION.
- As the country works its way out of the economic downturn large company profits continue to rise while lower and middle class workers continue to struggle.
As I look over the minimum wage battlefield I focus on three majors opinions:
- Although raising the minimum wage will benefit a segment of the population on a day to day economic level, will it address the critical issue of poverty in the United States. My opinion is that it will not significantly change the plight of the poor or increase the economic status of the disenfranchised of our nation.
- Unless the minimum wage is somehow tied to the inflation index over a number of years the minimum wage workers will continue to fight a losing battle.
- Raising the minimum wage will have short –term advantages for some but long term disadvantages for many.
Herein lies the real paradox of the problem. If raising the minimum wage ultimately leads to higher cost goods and services the result may be that those who benefit from the higher wage will not be able to afford the very goods and services they produce.
Effects of Minimum Wage Increase in California
It seems unfortunate that an unintended victim of raising the minimum wage may be small businesses. Small businesses employ millions of minimum wage workers and may be placed in the position of either not hiring additional workers or downsizing existing workforce. It may slow or stop the growth of small businesses in a time where growth should be expected.
What is the potential impact of a California minimum wage increase? Again, there remains strong opinions on both sides of the argument. In a report released from the NFIB Research Institute, entitled: Economic Effects of a California Minimum Wage Increase, by Michael Chow, the report states:
Depending upon the rate of inflation in future years, enacting AB 10 could result in over 68,000 lost jobs in California over a ten year period and a reduction in real output of $5.7 billion and more than 63 percent of the lost jobs would be jobs from the small business sector.
On the other side of that discussion, an Economic Policy Institute report titled “Raising the Federal Minimum Wage Would Lift Wages for Millions and Provide a Modest Economic Boost.” The majority of those benefitting from an increase will be between the ages of 20-54 (74.7%) and women (63%). An interesting aspect of the Institute’s position, however, states that “Studies have demonstrated little to no relationship between a higher minimum wage and reductions in poverty.”
In the State of California where the cost of living is significantly higher than most other states the official position is that California should not increase the minimum wage above the $9 per hour minimum signed into law in 2013. Governor Brown opposes a recent bill to raise the minimum to $11 on Jan. 1 and $13 by 2017. Citing an almost $4.5 billion dollar increase in State agency cost as a direct result of increasing minimum wage the Governor believes such an increase would place undue increases on an already stressed budget.
When we research the California minimum wage increase question and more specifically the affect of a San Diego minimum wage increase, there are pros and cons on either side. Unfortunately, there appears to be no right or wrong answers. There is no cut and dry position to hold. There are serious, factual and well thought out positions on both sides. In the meantime, wage minimum employees will continue to struggle with living at or below the poverty level. Also, small businesses will struggle with creating a balance between company growth and higher operating cost. Consequently, the battle of who is on the right side of the minimum wage increase debate will be the subject of many more articles and blogs.
How Does Minimum Wage Affect Small businesses?
Continued debate as to how and how much small businesses will be affected by a minimum wage increase will not resolve the issue. Regardless of how small businesses are affected, I believe that the trend is to increase the minimum wage and that the train has left the station. As of this writing 29 states have increased the minimum wage, with 21 of those states increasing it beyond the Federal standard. Personally, I agree that the minimum wage should be increased ,but in a controlled manner which takes into account small business concerns and does not have lasting negative economic consequences. In my opinion a California minimum wage increase will, in the short term, slow the growth of small businesses but over time will be an economic stimulus.
Small businesses again will have to tighten their belts and find new ways of overcoming any economic negative consequences created by the increase. However, small businesses should not overreact. Anticipating the potential impacts along with planning and implementing a well reasoned business strategy will save the day. How much real impact will be felt? Only time will tell.
Preparing Your Small Business
There may be little or nothing local small business owners can do to avoid a California minimum wage increase. However, being prepared is a critical element of business success. Here are three (3) important steps small businesses can take:
- Improve Work Processes – Inefficient work processes decrease productivity and increase business operating expenses. Take time to analyze what your employees actually spend their time doing. Eliminate redundant and wasteful workflow. By increasing work process efficiency and cutting waste, small businesses can more than make up for a modest California minimum wage increase.
- Automate where we can – Technology is created to improve productivity, utilize it !
- Develop a plan for increasing sales – Increasing customer base, repeat orders and broadening your target market will assist in increasing revenue.
In conclusion, whatever position we take in the minimum wage debate, in my view, continues to elude the critical question of how we succeed in operating our small businesses. It also will not address the issue of raising the economic condition of the most disadvantaged segments of our population.
Although a quick fix increase in minimum wage may stick our finger in the dike, the long term solutions lie elsewhere. Perhaps we are better served by focusing on enhancing levels of K-12 education in low income neighborhoods, reducing teen pregnancy, making higher education more affordable and promoting programs which create and utilize tools which break the poverty cycle. By accomplishing this we will be creating a pathway to enhancing skills and providing small business owners with a stronger and more competent workforce.
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This article was written by: Ricardo H. Correia, Human Resource Manager for Back Office Support Solutions.