Family business owners across the country are working every day to help their customers, their workers and their communities. But minimum wage increases across the country are hurting the future of these businesses. Increasing overhead on already tight margins makes it harder for businesses to survive at a time when new business startups are at a 40-year low according to U.S. census data.
In May, Democrats in Congress introduced legislation that would raise the minimum wage by nearly $8 per hour by 2024. Similarly, 19 states raised their minimum wages in January, with three others planning to follow suit by the end of the year.
Dozens of cities are also actively pursuing a government-mandated wage increase, with the mayors New York, San Francisco, and Seattle leading the charge. With the push for a higher minimum wage gaining momentum, many politicians are latching onto these proposals to solicit support from the younger, lower wage workers they represent. Unfortunately, the supporters of raising the minimum wage cloak themselves in altruism but ultimately prey on people’s misunderstandings of economics.
Empirical research over the past 70 years shows that minimum wage increases tend to reduce employment. The vast majority of minimum wage jobs are offered by small businesses or franchisee employers whose profit margins are thin. These businesses are unable to absorb increases to their cost of labor. Therefore, businesses usually must do one of two things: raise the price of their goods to compensate for the added costs or lay off employees.
Minimum wage work usually poses negligible risk to the worker, requires little skill and therefore requires minimal training. The purpose of such jobs is to help those individuals build the understanding and capability to take on more complex and demanding responsibilities. Because an increase to the minimum wage forces consolidation, these vulnerable workers are usually the first to be eliminated or replaced by automation.
For evidence of the systematic problems with minimum wage increases, one needs look no further than the early adopters: cities and states who pressed forward with the arbitrary increase.
In 2015, for example, the city of Seattle raised its minimum wage from $9.47 to $15 per hour. A June National Bureau of Economic Research study concluded that the multi-phase increase ultimately reduced hours worked in low-wage jobs by 9 percent. While wages did increase by about 3 percent, the total payroll fell. The result was that the ordinance reduced workers’ hours by 3.5 million per quarter, with an average decline in earnings of $125 per month on average in 2016. Other estimates in the study suggest that the minimum wage is associated with a 6.8 percent decline in low wage jobs, which adds up to around 5,000 jobs lost across Seattle.
A June 2017 New York Times article attempted to defend Seattle’s minimum wage increase, using an example from an opulent Seattle restaurateur who claimed that she could maintain her entire staff despite the increased cost of personnel. Tucked away in the last paragraph, the author admitted that the example was only possible after the owner jacked up her menu prices and added a 20 percent “service cost” for each table. Perhaps that’s a luxury some businesses can afford. However, for every such example, it’s easy to find others that detail the disastrous effects mandatory minimum wage increases have on employers and workers.
These horror stories of minimum wage increases gone wrong aren’t limited to Seattle. The minimum wage changes have taken their toll in nearly every state and city to adopt them.
It’s time for politicians to stop playing fast and loose with the truth on minimum wage. The adverse effects of these policies is not only crushing small businesses, but posing an insurmountable barrier to prosperity for the people who need access to employment.
Alex Ayers is Executive Director of the Family Business Coalition, a collection of small business associations and organizations united to protect family owned and operated businesses across the country.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.