WASHINGTON, D.C. (Feb. 9, 2026) – In a new op-ed published in RealClearMarkets, Peter Hansen, NFIB Director of Research and Policy Analysis, analyzes new research to explain why minimum wage increases erode small businesses and the economy at large. Hansen explains how the increases strangle innovation leading to a less dynamic, less diversified economy where incomes flatten and growth declines.

Hansen writes:

“Powerful new research sends a flashing red warning to the 19 states that increased their minimum wage on Jan. 1 this year. Those increases are coming with a hefty side of unintended consequences: Small businesses suffer as big corporations get bigger. Slowly, the new regulations strangle innovation and cut long-term growth.

“Minimum wages have been studied for decades to better understand their impact on businesses, employees, and job seekers. Less understood are the direct impacts on business formations and employment shifts between firms. That has changed thanks to a new paper by two economists, Nirupama Rao and Max Risch…”

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“Back to the new research and why it is such a gloomy indicator for minimum wage increases: The IRS business data shows a deterioration of creative destruction. It turns out that after a minimum wage increase, the number of businesses in an affected geography immediately starts to drop. Now, this might not be terrible news if the reduction was driven by a slight acceleration in the closure of older, underperforming companies. But existing businesses are fine. In fact, corporations—generally the largest, most entrenched companies—gain size and market share.

“Instead, the loss comes entirely from a decline in new businesses. Each year post-increase, fewer and fewer entrepreneurs take the leap and enter the market. By the fourth and final year in the dataset, there is a 5.5% reduction in the frequency of new businesses. And, given this trend, it is probably safe to assume the erosion gets worse than observed in the final year of data.

“Putting up such a significant barrier to entry for new businesses is one of the worst things you can do to an economy. You are choking off that vitally important creative destruction dynamic right at the source.”

Read the full op-ed here.

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