VICTORY: A proposed increase to the federal minimum wage failed in the U.S. Senate on April 30, 2014. The measure, S. 2223, needed 60 votes to pass and failed by a vote of 54 to 42. The proposal would have raised the federal minimum wage from $7.25 to $10.10 by 2016 and permanently indexed it to inflation. This vote was considered an NFIB Key Vote for the 113th Congress.
UPDATE: A new report from the nonpartisan Congressional Budget Office confirms the findings of our state-specific minimum wage studies. The CBO found that President Obama’s current proposal to raise the minimum wage to $10.10 could cost the economy 500,000 jobs. Read the full CBO report here.
NFIB opposes any effort to increase the federal minimum wage, including S. 2223, the Minimum Wage Fairness Act. This bill would increase the minimum wage to $10.10 and permanently index it to inflation. Like most government mandates on business, raising the minimum wage will have a deep and disproportionate impact on the small-business sector. Read NFIB’s Key Vote letter opposing S. 2223.
Small Business Example
- A community-based pizza parlor is selling 100 pies a day for 360 days at $10 each. Total revenue is $360,000. It employs 10 minimum wage workers earning $7 per hour, working 2000 hours a year, making labor costs $140,000
- However, rent, utilities, equipment, depreciation, insurance, supplies, licenses, and food costs come to $170,000 per year, leaving a profit of $50,000 for the owner and his/her family
- Raising the minimum wage $1 would raise labor costs by $20,000 and reduce profit to $30,000
- The owner must either move into a smaller house or raise prices, which reduces the demand for pizza, resulting in the loss of a worker
- So, the full increase in the wage cost of an increase in the minimum wage comes out of the pockets of customers or the owner’s family, and the one person who loses a job
Why this is a small-business issue
- Big corporations do not have to absorb the cost of minimum wage increases because most minimum-wage jobs are offered by small businesses
- Small businesses are the least able to absorb such a dramatic increase in their labor costs
- The small-business sector has historically created two-thirds of net new private jobs in the U.S. economy. But it has failed to recover in recent years because of a series of policies that increase the burden on small-business owners—higher taxes, increases to health-care costs, more costly regulations, and now the minimum wage increase proposal
- The minimum wage directly affects small businesses because a large amount of their earnings go directly to pay for operating expenses, such as equipment, supplies, lease or mortgage, credit lines, inventory and employee wages and benefits
- These proposals do not incentivize growth or hiring – they make it nearly impossible
Mandatory wage increases hurt not only small businesses, but their employees as well
- Raising the minimum denies more low-skilled workers the opportunity to get a job and receive “on the job” training
- Workers must bring at least as much value to the firm as they are paid or the firm will fail and all jobs will be lost. Raising the minimum wage raises the hurdle a worker must cross to justify being hired
- A higher minimum wage would force employers to stop expanding or to downsize. It will have a direct impact on unemployment rates
The economics of a manufactured wage increase
- Economists continue to affirm the job-killing nature of mandatory wage increases: mandatory minimum-wage increases end up reducing employment levels for those people with the lowest skills
- Raising the cost of labor raises the incentive for employers to find ways to use less labor
- In fact, higher minimum wages could decrease the number of entry-level positions available, since businesses buy less labor as its cost rises
- Indexing the minimum wage would ensure that it would rise every year, further adding to the burden placed on employers and placing them at a competitive disadvantage
- Employee benefits costs have increased significantly in recent years, especially due to new mandates under the President’s healthcare law
Impact on poverty
- Studies show that most minimum wage earners are not in poverty, but their employment opportunities are impaired by an increase in the minimum wage
NFIB Research Foundation minimum wage studies by state
- Forbes article by NFIB’s chief economist, Bill Dunkelberg, on the how raising the minimum wage kills jobs.
- NFIB’s Press Release on the Minimum Wage.
Watch: Bill Dunkelberg’s “Minimum Wage Increase Hurts Small Business” | NFIB Your Bottom Line