Minimum Wage Effects on Businesses Are Once Again in the Spotlight

President Obama’s State of the Union minimum wage-increase proposal has rekindled a long-standing debate on what the effects of such a move would be on workers, business opportunity, franchise and other business owners, and the economy as a whole. His vote? To raise the federal minimum wage standard from its current level of $7.25 per hour to $9 by 2015 and then index it to inflation moving forward.

Unfortunately, decades of debate on whether or not the minimum wage should be increased have yielded little in the way of consensus, and studies examining its effects are all over the map. Where some findings would seem to support the idea of raising the minimum wage, others point to the potential of unintended if not negative consequences—especially given today’s somewhat uncertain economic climate.

While the overall economy is showing some impressive signs of recovery, it is also exhibiting areas of stubborn weakness. The stock market may be at an all-time high, hiring and the housing markets are improving, and manufacturing is on an upswing, but overall economic growth is slow and the current unemployment rate is still too high. Most would agree that the real problem is that consumers and even businesses just aren’t spending and investing like they need to in order to get things moving again.

So the question in the minds of many is whether or not a minimum wage raise would be an economic stimulus in this regard or a nail in the coffin? Maybe it’s a little of both…an idea whose time has come, just not quite yet? One thing is for sure, it’s all pretty confusing when you consider both sides of the debate.

In an effort to crystallize the issue for anyone who may be wondering what the arguments are, here’s a look at the strongest points that are being made both for and against Obama’s latest minimum wage-increase proposal:

Pros: Yes, Increase the Minimum Wage!

• A raise in the minimum wage will increase the amount of income flowing into low-to-medium income households.

• The additional $1.75 per hour would result in nearly 18 million workers getting a raise; among those that would benefit, more than 84% of them are at least 20 years old and more than half are families earning less than $40,000/year and working full-time. (Source: Economic Policy Institute)

• Increasing the minimum wage means workers have more money to spend; when they have more purchasing power, it’s a boost to the local as well as the overall economy.

• Raising the current minimum wage will result in greater employee job satisfaction and increased productivity, which will ultimately result in lower turnover and reduced training costs for employers.

• Studies show that there has been a negligible impact on employment in the past when similar proposals to increase the minimum wage have been implemented, usually in a gradual fashion over a set period of time.

Cons: No, Don’t Raise the Minimum Wage!

• Minimum wage effects on businesses are substantial—increasing it will result in lower profits and increased labor costs that will ultimately affect the prices of their products and services, driving them higher.

• A minimum wage increase won’t really help families but rather hurts low-skilled workers, as most people who earn a minimum wage are under the age of 25, work part-time and in certain occupations, such as food service, personal care, maintenance, sales or office help.

• A raise in the minimum wage will force employers to cut employee hours and benefits to make ends meet, and it will make them less likely to hire teens and lower-skilled workers.

• There is little to no proof that increasing the minimum wage reduces the poverty rate.

• An increase in the minimum wage will hurt unskilled workers who are looking to be trained and work their way up—it will reduce the number of entry-level jobs.

What do you think? Will an increase in the current federal minimum wage standard of $7.25 per hour to $9 per hour by 2015 have a positive or negative impact on the current economy? How would it affect your business? Is the idea of compromise—like waiting until the labor market is a little bit stronger—a good one? Why or why not?

 

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