Will a $15 minimum wage break the back of small business?

Since the federal minimum wage was last raised in 2009, Economic Policy Institute data indicate the rising cost of living has outpaced and significantly eroded its value. That wasn’t the original idea; when FDR introduced a minimum wage in 1938 in the wake of the Great Depression, he said it was intended as “more than a bare subsistence level.”

The disparity between the minimum wage and today’s cost of living is so wide that in not one U.S. state can a full-time, minimum wage worker afford a two-bedroom rental without spending half of his income on rent (the recommendation is one-quarter), which leaves insufficient funds for the most basic necessities.

According to 2019 MIT data, since 2009, average U.S. housing cost has increased by 49 percent. Childcare, healthcare, and food costs have all outpaced wages.

Economic wage calculators indicate if minimum wage had kept pace with inflation and essential living costs, it would be closer to $24 an hour now.

And before you say, “but minimum wage jobs are mostly for part-timers and students,” the Bureau of Labor Statistics reports more than half are age 25 to 65, 75 percent work full-time, and many are parents. A minimum wage increase would impact a third of U.S. workers, according to the U.S. Bureau of Economic Analysis.

Combine that with reported worker shortages in many industries and a declining U.S. birth rate at 1.7 per woman (births aren’t replacing existing adults), and the result is an unbalanced economy which could become untenable if we do nothing.

Congress’s years-old discussion of raising the federal minimum wage to $15 (at least incrementally) is back at the forefront. Even if they don’t act soon, more businesses are finding they don’t have much option if they want to avoid turnover and attract workers.

It’s true that wage jumps are hardest on small businesses — the financial backbone of the American economy. Fears of going under are an understandable worry, but credible data from economic researchers suggests such concerns aren’t well supported by facts, as most have weathered increases in the past.

Still, that’s easy to say, harder to face.

Yet overall data point to potential good news for small business budgets, even in the current climate of uncertainty.

Minimum wage increases during recessions are not uncommon. Since the minimum wage was first adopted during the mass unemployment and poverty of the Great Depression, economies have generally grown and strengthened after such increases (not to be confused with effects of the recessions themselves).

It’s true that in the short-term, small businesses struggle to adjust, and some jobs are lost without being replaced. That effect is heightened if the increase is too aggressive, as critics say happened in Seattle in 2016.

But economic research also repeatedly finds that experience is far from universal: Wage increases also measurably boost worker productivity, reduce turnover, and stimulate consumer spending — offsets which outpace increased payroll costs, according to research presented to Congress in 2019 from the University of California-Berkeley.

Such effects take time and patience. Some research indicates overall job growth, not loss, results from minimum wage increases. A 2014 Goldman Sachs analysis found 13 states that had raised their minimum wage actually had faster employment growth than the states where the minimum wage remained at its 2013 level. Twenty-nine states and D.C. already have statutory wages higher than the federal minimum.

A 2020 CNBC survey found that a majority of small businesses surveyed could absorb the rise in labor costs after a minimum wage increase. Perhaps hiring problems are motivating new perspectives, but a growing number of business owners are raising wages to compete for labor, finding benefits of paying a “fair” or “living” wage.

Small business support for a national wage increase is rising. Part of that may be a concern for employees after a hard pandemic year, but they’re also finding the consuming public is more attuned to worker happiness, responding with their buying choices.

That gets to the heart of another reason big job losses don’t accompany minimum wage increases. More spending money means more cash in local economies, which tends to boomerang as a cost offset. A 2011 study by the Federal Reserve Bank of Chicago estimated each additional dollar in minimum wage translates to an additional $2,080 in those workers’ annual household spending.

The bottom line seems to be that while concerns are real, increased consumer demand, worker productivity, and reduced employee turnover offset increased labor costs for most businesses after a minimum wage increase.

Regardless, and even without political action, the economics of demand against shrinking worker supply is making it a reality anyway. Laws aside, with local grocery stores already offering 65 percent more than Idaho’s minimum wage, the only practical way to compete may be to embrace change.

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Sholeh Patrick is a columnist for the Hagadone News Network. Email sholeh@cdapress.com.