Who Suffers the Most from Minimum Wage Hikes?

Date: January 26, 2016 Last Edit: February 11, 2016

Minimum wage increases disproportionately affect franchise businesses and their employees, according to new research.

Minimum wage hikes are hitting local franchises the hardest, according to a recent study by the Employment Policies Institute. 

Franchise businesses are likelier than non-franchise small businesses to reduce staff members, cut hours and increase automation to cope with a $15 minimum wage hike, according to the EPI. 

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As cities begin to categorize small businesses by their business models, lawmakers exclude local franchises, no matter how small, from receiving a decelerated phase-in rate of minimum wage increases.

Ritu Shah-Burnham, former owner of Z Pizza in Seattle, closed her small restaurant of 12 employees after city policymakers classified her business as “indistinguishable from a large corporation.” If she had been included in the decelerated phase-in rate, Shah-Burnham could have saved her restaurant. 

“[If] I had seven years, it was doable,” she said. “But to do it in 24 months, it was going to be too much.”

Washington state’s Attorney General Robert Ferguson said that franchises have a “unique economic advantage that gives them the ability to more easily absorb an accelerated wage phase-in.” 

However, the EPI reports that 86 local franchises will not be able to renegotiate the contracts with their franchiser. Local franchise owners will instead be forced to absorb the increased labor costs—not their mother corporation. 

“Franchised businesses may have an advantage in their recognizable brand,” wrote Lloyd Corder, lead researcher of the EPI study, in Forbes.“But they do not possess a unique resiliency against labor cost increases that would justify an accelerated minimum wage phase-in vis-à-vis their non-franchise counterparts,” 

Moreover, 56 percent of local franchises report hiring minimum wage workers, compared to 38 percent of small businesses.

“Every small business wants to pay its employees a quality wage, and franchise owners are no different,” said Matthew Haller, a spokesman for the International Franchise Association. “Arbitrarily imposing a higher minimum on these local families would be unfair, discriminatory and hurt the very people the policies are designed to help—even more so than those against non-franchise businesses.”

Related Content: Analysis | Labor | Minimum Wage | National

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