Small Business & The Minimum Wage Debate
To Raise or Not to Raise: Minimum Wage Spurs Debate
Jul 23, 2014
Valcor CEO David Sussman was interviewed on Capital One’s Spark Business IQ:
While the federal minimum wage bill stalls, cities including Seattle, Washington, DC, San Diego, and San Francisco have all passed minimum wage increases of their own. The wage increase varies, going up to $11.50 per hour in San Diego and up to $15 per hour in Seattle. And across the country, small business owners fall on both sides of the debate, many wrestling to reconcile the moral implications of low wages with the financial realities of running their businesses.
For instance, Lydia Stern supports an increase, even though it would likely require her to cut back on employees’ hours and spend more of her own time serving customers at Beadlush, a bead shop in Charlotte, NC. While a minimum wage increase “might be painful for a small business like mine at first, in the long run it will increase the overall amount of disposable income that can be spent in a specialty shop like mine,” Stern says. “I feel that, eventually, we would be able to bounce back to where I could increase hours for my team, freeing me up for managerial responsibilities.”
For most business owners, there are no easy answers. Here’s a rundown of some of the pros and cons.
Con: Raising costs without raising value
Increasing the minimum wage “will only raise costs, not increase value,” says David Sussman, CEO of Valcor Worldwide, a network of small business consultants. While a higher minimum wage will affect all small businesses, Sussman says it will be felt the hardest in franchise operations, quick-service restaurants, and small retail stores with tight profit margins. “There’s also a secondary impact here that many might not think about initially,” he says. “Once you raise the price for your minimum wage workers, you’ll end up having to raise the salaries for your managers and supervisors since your pay scale will become imbalanced.”
Pro: Building a stronger economy
Although increasing wages will certainly increase costs, some business owners believe it will eventually translate into more sales. “An increased minimum wage will put more money into many working Americans’ pockets,” says Kathleen Hale, CEO of Washington, DC-based Rebel Desk, an e-commerce business selling standing desks and treadmill desks. “More money in their pockets should mean more consumer spending. As businesses increase their revenue, it is more likely that they will invest in my company’s products.”
When “more people have more money” it’s good for the economy overall, Stern adds.
Con: Making small businesses scramble to keep going
Small business owners that operate on tight margins already will “have to make some tough decisions” when facing a minimum wage increase, Sussman says. “They may need to raise the price of their goods or services, layoff employees, or cut back their hours. Independent business owners have other options too, like finding additional sources of revenue, bringing in new business models and getting rid of products or services with weak profit margins. Franchise owners won’t have these options, however, which is why a wage increase will be especially hard for them.”
Since Seattle passed a gradual increase to $15 in June, “we’re already seeing the negative impact on small businesses there,” Sussman says. “Businesses are struggling with the higher costs and many are saying they’ll have to relocate outside the city limits.”
For Hale, who counts many businesses among her customers, a raise in the minimum wage could cause sales to slow “if the raise makes businesses more cautious about new purchases or spending on wellness initiatives,” she says.
Pro: Helping people provide for their families
Despite the bottom-line realities of increasing wages, many business owners feel a moral responsibility to provide fair wages. “People deserve to make a living wage and support their families in a 40-hour workweek,” Stern says. “No one should have to work three jobs just to feed their families.”
Because the current minimum wage has not kept pace with inflation, “those with minimum wage jobs have to survive on less money than they did decades ago,” Hale says. “I believe that raising the minimum wage is particularly important for women who make up a substantial percentage of workers with minimum wage jobs and are often the sole breadwinners for their families.”
Con: Perpetuating a minimum-wage lifestyle
Rather than focusing on making minimum wage jobs more lucrative, some experts say Americans should be looking at ways to move workers beyond low-wage jobs.
“While we all want a living wage for people, we’ve lost sight of the real issue here,” Sussman says. “We really need to start asking ourselves if we want minimum wage jobs to become careers for people. Minimum wage jobs were never meant to be the final destination; they’re supposed to be an initial step to help people get to where they’re going.”
Capital One does not provide, endorse, nor guarantee any third-party product, service, information or recommendation listed above. The third parties listed are not affiliated with Capital One and are solely responsible for their products and services. All trademarks are the property of their respective owners.
Powered by Spark Business