Minimum-Wage Debate Continues
One of the fiercest debates affecting small business in recent years has been about the minimum wage. Congress upped the federal minimum wage last year, following several increases on the state level.
Some of the most prominent small-business advocacy groups, including the National Small Business Association (.pdf) and the National Federation of Independent Businesses, have protested minimum-wage increases, saying they do economic harm to small firms. A common response from minimum-wage supporters is that higher wages mean more money in the hands of consumers, which in turn means more consumer spending and thus more revenue for employers.
A study that just came out from the National Bureau of Economic Research provides some evidence to think that even if that process does occur, it's not very significant. It concludes that small firms (as well as other firms) really do take a hit in profits overall when you raise the minimum wage:
We report evidence showing that firm profitability was significantly reduced (and wages significantly raised) by the minimum wage introduction. This emerges from separate analyses of two distinct types of firm level panel data (one on firms in a very low wage sector, UK residential care homes, and a second on firms across all sectors).
Three caveats:
1. The study looked only at firms in the United Kingdom, so we should not jump to immediate conclusions that the results necessarily hold true in the United States, although they are somewhat telling.
2. The authors note in the conclusion that they could not find evidence that the lost profits caused any firms to drop out of the market completely.
3. Reduced profits don't mean a higher minimum wage is necessarily a bad idea. But the benefit of higher wages for employees needs to be weighed against other trade-offs.
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Reader Comments
minimum wage
the minimum wage should be held to workers over 20-25 hours per week. by increasing it for everyone, businesses will just cut out the lowest on the chain, and they are the seasonal or younger(students) workforce. and as proof of this, my business has already cut most students working in favor of older workers. we have also raised prices of our food.
at a time when prices for food, oil, and other goods are skyrocketing out of control, adding another increasing expense to an already hurting small business is not the answer.
Minimum wage
I have also cut students from my payroll. I am not going to pay more for those who are neither dependable or motivated. Thier parents are too busy running around walmart buying chinese stuff to raise our gas prices and lower our future SS benefits to instill any level of responsibility in their kids, who will learn later that nothing is free.
1998: McCain Voted Against An Amendment To Raise The Minimum Wage. McCain voted against an amendment to increase the minimum wage to $5.65 an hour beginning January 1, 1999, and $6.15 an hour beginning January 1, 2000. According to the Bureau Of Labor Statistics, 64% of all minimum wage earners were women in 1998. [1998 Senate Vote #278, 9/22/1998]
1996: McCain Voted Against An Amendment To Raise The Minimum Wage. McCain voted against passage of the bill to increase the minimum wage from its current level of $4.25 per hour to $4.75 per hour on July 1, 1996, and to $5.15 per hour on July 1, 1997. According to the Bureau Of Labor Statistics, 64.3% of all minimum wage earners were women in 1996.
1989: McCain Voted Against An Amendment To Raise The Minimum Wage. McCain voted against minimum wage increases to $4.55/hr in 3 annual steps by 10/1/91. According to the Bureau Of Labor Statistics, 63.1% of all minimum wage earners were women in 1989.
The Fabulous Life of John McCain
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