What changes to the minimum wage mean for small businesses in America
The minimum wage is set to increase in 20 states, affecting millions of workers. But how will this forced pay increase impact business owners?
According to an old saying, if you ask five economists for advice you’ll get five different answers. But when it comes to a $15-an-hour federal minimum wage, economists are in near-universal agreement: it’s a bad idea.
That's the conclusion of a new survey conducted by CorCom Inc., the company I head. The survey was released this week by the Employment Policies Institute.
The survey coincides with the push by House Democrats to pass the Raise the Wage Act of 2019. The bill would increase the federal minimum wage to $15 an hour – a more than 100 percent increase – by 2024. The legislation would also raise by more than 600 percent the minimum wage for workers who earn tips, like restaurant servers.
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The current federal minimum wage has been set at $7.25 since 2009. Tipped workers are subject to the same hourly minimum wage through a combination of a base wage and tip income. Census Bureau data show that most earn far more than the minimum.
At a recent congressional hearing before the House Education and Labor Committee on the Raise the Wage Act, committee members heard testimony from a researcher at a labor union-supported think tank who was sympathetic to the social goals of a $15 minimum wage and supported it as policy.
Just 6 percent of economists believe a $15 minimum wage is a very efficient means to reduce poverty. But most economists believe there are better alternatives to a higher minimum wage.
But based on the results of our survey, which includes the perspectives of nearly 200 U.S. economists, this pro-$15 view is held by just a small minority of economics professionals.
Nearly 90 percent of surveyed economists believed an acceptable federal minimum wage should be less than $15 an hour. When asked what level of wage floor they would support, roughly 40 percent endorsed the current federal hourly minimum wage of $7.25 or less. And 66 percent said the minimum wage should be no higher than $10 an hour.
What concerns the economists about a $15-an-hour minimum wage?
Some 84 percent of the economists in our survey said the policy would lower youth employment. And 56 percent believe it would hurt adult job seekers as well.
These concerns are well-founded. In a 2014 report, the nonpartisan Congressional Budget Office reviewed several decades of literature on the minimum wage. It concluded that roughly 500,000 jobs would be lost at even a $10 federal minimum hourly wage.
Cities and states that have raised their wage floor closer to the $15 standard that’s now proposed have seen more severe negative impacts.
A 2017 Harvard University study linked the rising minimum wage in the San Francisco Bay Area to a sharp increase in closures of restaurants with an average (3.5-star) rating on Yelp.
Restaurants in New York City are feeling the pinch too. In a recent survey conducted by the New York City Hospitality Alliance, nearly 75 percent of restaurant owners said they are reducing employee hours this year. And 47 percent of the restaurant owners are eliminating jobs.
A higher minimum wage doesn’t help a worker who loses his or her job because of the mandated increase.
Our survey results show that just 6 percent of economists believe a $15 minimum wage is a very efficient means to reduce poverty. But most economists believe there are better alternatives to a higher minimum wage.
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In our survey, 64 percent of economists believe an expansion of the Earned Income Tax Credit (EITC) is a better way to help low-income households. By using the tax code to bolster income, the EITC is a more efficient and less-harmful approach to raising overall income for such households.
Economists may not agree on much, but on the question of whether a $15 minimum wage is too extreme for a national standard, the answer is a resounding "yes."