A minimum wage increase will put pressure on everyones compensation, so businesses may have to cave and pay up
Over the past few years many localities and cities, from New York City to Seattle, have passed legislation raising minimum wages that employers must pay to $15 an hour. Now, Washington is taking action. If youre a small business owner, you better be paying attention.
Bloomberg reports that House Democrats are in the final stages of negotiations of a new bill, called the Raise the Wage Act, that will yes raise the national minimum wage to $15 an hour. The bill will be voted on this week.
Its certainly not a done deal. Most House Republicans are opposed and even some Democrats are concerned that the increase would have an adverse effect on rural communities and small businesses. One member is even floating a tax credit that would help defer any potential added costs for small businesses. Even if it does pass the House, the bill will face stiff opposition in the Republican-controlled Senate.
But heres the thing: I predict that a minimum wage increase really could and probably will happen in some form. Maybe not as much as $15. But Donald Trump supports an increase well above the current national rate of $7.25 an hour, which just about everyone agrees does not make for a very sustainable existence. Its an election year issue and raising it at least a little would probably be popular (or at least acceptable) to most voters, even business owners.
Of course theres opposition. Business groups hate it and you can find countless stories of small businesses struggling to cope or folding in cities where wages have increased. There are studies even a very recent one from the Congressional Budget Office that show how a minimum wage hike would cost jobs. But there are other studies (like this one) which do not uncover any evidence of job loss in cities where a minimum wage increase took effect. Each side of the debate can point to their own set of data to back up their case and neither side is going to convince the other.
None of that matters. Most business owners I know pay their people well above the national minimum wage. What really matters is that an increase in the minimum wage will put pressure on all the wages in your business.
Dont believe me? Lets say youre paying a worker $15 an hour already, which is more than twice the national minimum wage. Whats that worker going to say if the national minimum wage gets increased to $15? Or even $11 or $12? Hey! they will yell. Ive been here five years and now Im only getting the minimum? The same wage as an entry-level person would get? Wheres my increase?
See? That increase will have a psychological effect on all of your workers, and many of them might demand an increase in their compensation just to keep parity with the minimum. I cant say I blame them either.
So how do you answer? You may have to cave and pay up. You may have to cut workers. Or reduce other overhead. Maybe you can increase prices. Or invest in technology to replace those workers. You will have to do something. But right now given the current trend nationally and the conversation in Washington you better be thinking about it. Because a higher national minimum wage, in my opinion, is inevitable.