SMALL BUSINESS WARNING TO LAW MAKERS: MINIMUM WAGE INCREASE MAY COME WITH NASTY SIDE EFFECTS
AUGUSTA (March 23, 2015): Today the National Federation of Independent Business (NFIB) testified in opposition to a minimum wage hike. The goal of the legislation, to increase take-home pay for workers, is laudable according to NFIB; however, the method of mandating a higher minimum wage will result in more pay for some workers, less pay for others, and higher prices for consumers.
“To begin with, a higher minimum wage does nothing for unemployed workers who have no paychecks.” According to NFIB Maine State Director David Clough, “and while small business understands the desire to help existing workers earn more, ordering employers to pay higher wages is not a risk-free economic miracle medicine. Like a prescription drug ad, raising the minimum wage should come with warnings that it may not help everyone and that some workers may experience mild to severe side-effects, from loss of hours to potentially loss of jobs.”
According to Clough, NFIB members are particularly opposed to indexing the minimum wage so that it will increase automatically in the future. For a small firm with 5 workers earning the minimum wage, the added cost mandated by these bills ranges from $5,736 to $51,265.
“Small businesses are labor intensive; they often are the source of entry-level jobs; and, due to their limited size they have less flexibility to absorb and adjust to mandated wage increases.” Said Clough. “Even a 50-cent increase over a 40-hour workweek adds up to more of a cost imposed on a small business payroll per employee. The added cost of a $12 minimum wage approaches nearly $10,000 per worker. These costs reflect the added wage and payroll taxes a small employer must pay.”
Clough’s testimony referenced a paper entitled, “How Do Small Businesses Pay for a Minimum Wage Increase,” published last year in the Economics and Finance Review, based on a survey of 1,294 privately-held U.S. companies, the author said: [W]e find that small businesses respond differently to minimum wage hikes than large businesses and that small businesses plan to pay for minimum wage hikes using the following methods:
1)Increase prices to customers
2)Reduce hours
3)Layoffs
4)Reduce other costs
5)Reduce profits to owners/investors
NFIB members have been especially concerned about proposals to create a mechanism for automatic minimum wage increases in the future. When asked the indexing question a few years ago, Clough testified that the response in opposing to an indexing mechanism was overwhelming negative.
“Only 14 states and the District of Columbia currently have automatic increases (Alaska, Arizona, Colorado, Florida, Michigan, Missouri, Montana, Nevada, New Jersey, Ohio, Oregon, South Dakota, Vermont, Washington),” Said Clough. “The impact on indexing remains to be seen but our membership ballot results were crystal clear. Main businesses do not want to see indexing for their state.”
