The down side of raised wages

July 21, 2009
wages

Millions of minimum wage earners across the United States have circled July 24th on their calendars, marking the day a mandated pay hike will bump up their hourly wages to $7.25 from $6.55.

The move is the latest in a three-part pay increase approved by Congress in 2007 in a bid to fatten up the paychecks of the country’s lowest earners and “improve the lives of working families across the nation,” the Department of Labor said.

But many small business owners are left asking, “What improvement?”

“For the business owner who hires a lot of people, I see prices going up and doors closing,” a sandwich franchise owner told the Indiana’s Journal and Courier newspaper.

Indeed, reports are already popping up about worried business owners forced to pass on higher costs to their customers, slash shifts, and in some cases, reduce headcount when the burden of higher wages catches up with them.

Meanwhile, critics are taking aim at the pay hike’s poor timing. With an unemployment rate at a dismal 9.5%, many are wondering how much more the bruised labor market can take.

But there is an upside, at least according to analysts at liberal think-tank Economic Policy Institute. The EPI says the wage increase will give consumer spending a much-needed boost and prevent the worst recession in decades from spiraling out of control.

Will the mandated minimum wage hike affect your business? If so, how are you planning to manage the increased costs?

8 comments

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This argument that employers will suffer, or otherwise cut back, is a myth; if the minimum loan were going up in, say, some Arkansas county, then business moves on to cheaper territory. This raise is nationwide, and all employers will simply either absorb or pass the increases on to the customers. Why have labor laws? Why not let 10 year olds work through the night? We stopped that long ago, and the Earth didn’t stop spinning. Give those who do most of the living, working and dying in this country a few bucks more and move on.
Bob

Posted by Bob | Report as abusive

My wife runs a small business without employees. She does my own work – toil from early morn to late evening all weekdays. That is the substitute for her lost job. It does not affect her like the “so called” SMB segment you are writing about. I am sure there are millions and millions of others exactly like her I am extremely delighted for wage earners that they asked for more and they got it from the broken, rotten system.

Posted by Mohandas | Report as abusive

isn’t ironic that we are shaking about the economic implications of raising 70 cents an hour to the poorest Americans while Goldman Sacks is dolling out billions of dollars in bonuses to already overpaid employees?

Posted by JCM | Report as abusive

I am a small business owner in Ontario Canada and we have gone through 3 consecutive years of minimum wage increases with the fourth coming up. It has indeed hurt my opperations because I cannot offer the same customer service for the prices people expect. Hours have been cut back and my roster has dropped from 20 to 12 because I cannot accomodate more people. It is unfortunate because the global reccesion has stalled most businesses but governments cannot adjust fast enough to help.

Posted by Greg | Report as abusive

The segment that will spend all they have is this one. Lots of it will be spent with small business. Don’t worry about it.

Posted by DanO | Report as abusive

One of the many downsides of raised wages means the value of the currency has fallen. Forced wage regulations are not a good thing but in fact a necessity where the currency is being consistently devalued. As a society we should be attempting to increase the worth of our currency.

Posted by jason Southard | Report as abusive

$7.25 an hour times 2080 hours per year: $15,080.

Call it $15K per year for an even number.

As it stands now because of inflation and ‘progressive’ taxes, three unrelated people each scraping minimum wage washing dishes or mowing lawns for a living can better afford a joint mortage on a three-bedroom than a single-income family of three pulling down $45K per year, with the ‘bread-winner’ having at least one college degree.

Does that strike anyone else as somewhat odd???

Drip, drip, drip; inflation.

Drip, drip, drip drip; ‘progressive’ taxation.

If all the little drips happened at once…

Posted by dom youngross | Report as abusive

Hi! We have the highest minimum wage in the country here in Washington. Hamburgers cost the same here as they do there. The car washes have not gone out of business.

If your business goes under because of incremental increases in the minimum wage, you’re doing it wrong!

Posted by Ian | Report as abusive