If the federal government passes the Raise the Wage Act, it will increase the national minimum wage to $15 per hour. Whether you’re for or against the Act, you can’t deny that it’s a hot topic.
Proponents of the act argue that increasing the minimum wage to $15 per hour on a national scale could raise nearly 1 million people out of poverty, helping low-income families attain a higher standard of living.
Those who oppose the act argue that minimum wage increases will hurt small businesses, which make up the majority of U.S. employers. Small business owners were hit especially hard during the COVID-19 pandemic. Some people fear that increasing the minimum wage would further inflate labor costs, in some cases by more than 100%. To stay open, they argue, small businesses may need to reduce employee benefits and automate positions, which could lead to job loss.
About the Proposed $15 Minimum Wage Increase
The last time the federal minimum wage rate increased was in 2009, when the rate went from $6.55 per hour to the current rate of $7.25. That makes this the longest period in U.S. history without a raise to the federal minimum wage rate.
If the Raise the Wage Act passes and the rate gets raised to $15 per hour, it would be the largest ever percentage increase in U.S. history. The last time a percentage increase was even close to the current proposal was in 1950, when the minimum wage rate rose from $0.40 to $0.75 per hour.
Several amendments to the Fair Labor Standards Act mandated nearly annual increases to the U.S. minimum wage between 1960 and 1970 and between 1974 and 1981. While the 1990s and late 2000s saw several increases, the federal minimum wage has since stagnated. That’s why some argue that it’s time to pass the Raise the Wage Act of 2021 and, via scheduled increases, raise the federal minimum wage to $15 per hour by 2025.
Supporters believe that the increase would provide a necessary boost to low-wage workers and stimulate the economy. Opponents argue that it could lead to job loss and the closure of many small businesses that can’t afford a large increase in labor costs.
While the Act hasn’t been passed at the federal level in Washington, D.C., some state legislatures have elected to raise their own minimum wages, bringing them closer to or even beyond the proposed $15 rate.
The Minimum Wage Increase’s Effects on Small Businesses
Many small business owners worry about the negative impact a $15 minimum wage could have on their business. But, as with anything, the Raise the Wage Act has pros and cons. Depending on whom you ask, you’ll hear different opinions. While it may seem like workers would enjoy all the pros while businesses would bear all the cons related to increases in the minimum wage, there could be both dark clouds and silver linings on each side.
What Are the Pros of a $15 Minimum Wage Increase?
While the federal minimum wage has increased over time, the increases haven’t consistently kept up with inflation rates. When you factor in today’s cost of living, people who make $7.25 per hour today are effectively earning 30% less than those who worked for minimum wage 50 years ago. Modern minimum wage workers have less purchasing power than those in the past. That’s part of the reason some people believe that paying more than minimum wage can give businesses a competitive edge.
Read on to learn why supporters of a higher minimum wage say it could help both workers and employers.
Reduced Employee Turnover
Proponents of the Raise the Wage Act argue that higher wages may lead to increased job satisfaction and, ultimately, lower turnover rates. After historic quit rates in the early 2020s, this may come as welcome news. After all, when small businesses can hold onto their employees longer, they don’t need to hire and train new employees as often, which saves time and money. And employees enjoy more stability in their careers.
Improved Worker Productivity
Some studies have shown that higher wages can lead to increased productivity. The idea is that employees are more motivated and better focused when they feel they are fairly compensated for their work.
Increased Economic Activity
When people earn more, they typically spend more. And when large portions of a population see their spending power increase, economic activity tends to go up. The argument is that a resulting boost in economic activity could also increase the demand for small businesses’ goods and services.
Higher Employee Morale
Money can’t buy happiness, according to the old adage. While that may be true, money can reduce financial stress. When employees are less worried about paying their bills, they’re likely to be happier and more focused at work. Some argue that improved morale has numerous benefits for employers, too, including better customer service.
Reduced Reliance on Public Assistance
If passed, the Raise the Wage Act could elevate nearly one million people above the federal poverty line by 2025, according to the Congressional Budget Office. Proponents of the Act argue that if fewer people live below the poverty line, fewer people would need public assistance programs. Down the line, this could save small businesses money by reducing taxes that help fund these programs.
What Are the Cons of a $15 Minimum Wage Increase?
If you’re a small business owner, you know how tough the COVID-19 pandemic was on the majority of small businesses. Many businesses struggled to protect their staff’s safety while keeping their businesses open. Supply chain issues choked productivity and costs on all fronts seemed to rise.
For this reason, some people say that now just isn’t the right time to hit small businesses with another challenge. Opponents argue that raising the minimum wage to $15 per hour is more difficult than ever for small businesses—and they fear that the following issues would arise.
Higher Labor Costs
One of the most significant and earliest impacts of a higher minimum wage is increased labor costs. In fact, some states would need to more than double the current pay rates for their minimum wage workers—not to mention adjusting the wages for those at higher levels. Many argue that such a steep increase in labor costs would likely result in higher prices for goods and services, negating any increase in employees’ purchasing power; a reduction in employer-provided benefits; fewer hours for workers; and the automation of more jobs.
The Need to Increase Pay Across the Board
Raising pay at the minimum wage level will likely pressure companies to increase the pay for higher-paying positions as well. Hard-working, tenured employees and those with specialized skill sets understandably want their contributions and experience to be rewarded. If companies try to keep wages for their more experienced and specialized employees similar to what they pay newer, less skilled employees, they could have trouble keeping and attracting higher level talent.
Reduced Profits
Higher labor costs can reduce profits, especially for small business owners who are less likely than large employers to pass added expenses to their customers. This means small businesses may need to make significant changes to their cost control strategies to absorb the additional costs.
Decreased Hiring
To keep higher labor costs from ballooning out of control, some small businesses may choose to hire fewer people. Not only does this decrease job opportunities, especially for low-skilled workers, but it can also increase the burden on remaining employees.
Increased Automation
As technology with built-in artificial intelligence (AI) improves and gets cheaper, more small businesses are using it to automate processes and increase productivity. If small business owners decide that labor has gotten too expensive, they’ll likely lean further into automation as a tool to save money while still getting work done. For instance, some might use chatbots to automate customer service-related tasks and eliminate positions. While this could be a long-term boon to small businesses’ bottom lines, it would also decrease the availability of low-skilled jobs for workers.
Increased Price Competition
Small businesses may need to increase their prices in order to cover higher labor costs. As some do, others may use the opportunity to lower their prices and attract customers, spurring price competition that could further harm small businesses.
Minimum Wage Increases By State
If passed, a new federal minimum wage rate of $15 per hour would have markedly different effects from state to state. That’s because each state’s minimum wage differs based on its own state law.
In fact, three state minimum wage rates are already higher than the proposed $15 per hour: California, Washington and Washington, D.C. The state of Massachusetts has already set $15 as its minimum hourly pay rate. While small businesses in these locations wouldn’t experience higher labor costs if the Raise the Wage Act gets passed, businesses in other states could see a huge impact on their bottom lines.
It’s worth noting that not all states have their own minimum wage laws. In those cases, they’re subject to the rate currently mandated by the Fair Labor Standards Act. In the 21 states that use the federal minimum wage, small businesses could see a 107% increase in labor costs. For the other 16 states, the increase would range between 6% and 51%. Use the below chart to see how your small business could be affected.
| State | Current Min. Wage Per Hour | Difference btwn current & $15/hour | % change (rounded to nearest whole number) if Act is passed |
| Alabama | $7.25 | $7.75 | +107% |
| Alaska | $10.85 | $4.15 | +38% |
| Arizona | $13.85 | $1.15 | +8% |
| Arkansas | $11 | $4 | +36% |
| California | $15.50 | -$0.50 | (-) |
| Colorado | $13.65 | $1.35 | +10% |
| Connecticut | $14 | $1 | +7% |
| Delaware | $11.75 | $3.25 | +28% |
| Florida | $11 | $4 | +36% |
| Georgia1 | $7.25 | $7.75 | +107% |
| Hawaii | $12 | $3 | +25% |
| Idaho | $7.25 | $7.75 | +107% |
| Illinois | $13 | $2 | +15% |
| Indiana | $7.25 | $7.75 | +107% |
| Iowa | $7.25 | $7.75 | +107% |
| Kansas | $7.25 | $7.75 | +107% |
| Kentucky | $7.25 | $7.75 | +107% |
| Louisiana | $7.25 | $7.75 | +107% |
| Maine | $13.80 | $1.20 | +9% |
| Maryland | $13.25 | $1.75 | +13% |
| Massachusetts | $15 | $0 | (-) |
| Michigan | $10.10 | $4.90 | +49% |
| Minnesota | $10.59 | $4.41 | +42% |
| Missouri | $12 | $3 | +25% |
| Mississippi | $7.25 | $7.75 | +107% |
| Montana2 | $9.95 | $5.05 | +51% |
| North Carolina | $7.25 | $7.75 | +107% |
| North Dakota | $7.25 | $7.75 | +107% |
| Nebraska | $10.50 | $4.50 | +43% |
| Nevada3 | $10.50 | $4.50 | +43% |
| New Hampshire | $7.25 | $7.75 | +107% |
| New Jersey | $14.13 | $0.87 | +6% |
| New Mexico | $12 | $3 | +25% |
| New York4 | $14.20 | $0.80 | +6% |
| Ohio5 | $7.25 | $7.75 | +107% |
| Oklahoma6 | $7.25 | $7.75 | +107% |
| Oregon | $13.50 | $1.50 | +11% |
| Pennsylvania | $7.25 | $7.75 | +107% |
| Rhode Island | $13 | $2 | +15% |
| South Carolina | $7.25 | $7.75 | +107% |
| South Dakota | $10.80 | $4.20 | +39% |
| Tennessee | $7.25 | $7.75 | +107% |
| Texas | $7.25 | $7.75 | +107% |
| Utah | $7.25 | $7.75 | +107% |
| Virginia | $12 | $3 | +25% |
| Vermont | $13.18 | $1.82 | +14% |
| Washington | $15.74 | -$0.74 | (-) |
| Wisconsin | $7.25 | $7.75 | +107% |
| West Virginia | $8.75 | $6.25 | +42% |
| Wyoming7 | $7.25 | $7.75 | +107% |
| District of Columbia | $16.10 | -$1.10 | (-) |
*Source: https://www.dol.gov/agencies/whd/minimum-wage/state (accessed January 6, 2023)
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[FOOTNOTES]
- Georgia has a minimum wage of $5.15 per hour, but its state law excludes from coverage any employer subject to the federal Fair Labor Standards Act.
- By Montana state law, a business with gross annual sales of $110,000 or less is not covered by the federal Fair Labor Standards Act and, therefore, may pay $4.00 per hour. However, if an individual employee is producing or moving goods between states or otherwise covered by the federal Fair Labor Standards Act, that employee must be paid the greater of either the federal minimum wage or Montana’s minimum wage.
- In Nevada, the $10.50 minimum wage applies only to employees whose employers do not offer health insurance. Employers that do offer health insurance can pay a minimum wage of $9.50 per hour. On July 1, 2023, the minimum wage will increase to $11.25 for employees not offered qualifying health insurance and to $10.25 per hour for employees offered qualifying health insurance. Effective July 1, 2024, there will be a uniform minimum wage of $12.00 per hour for all employees.
- This minimum wage does not apply in New York City, Long Island or Westchester, which are $15 per hour.
- A minimum wage of $10.10 applies to employers with annual gross receipts of $372,000 or more.
- This minimum wage applies to employers of ten or more full time employees at any one location and to employers with annual gross sales over $100,000, irrespective of number of full time employees.
- Wyoming has a minimum wage of $5.15 per hour, but its state law excludes from coverage any employer subject to the federal Fair Labor Standards Act.
Lift people up out of poverty as they are firmly stuck in it. Every year they increase the minimum wage in Arizona the prices go up. A value meal at McDonald’s is $15 and rising. I talked to a small business owner who said that every December her suppliers raise prices ahead of the minimum wage increases. So I don’t know what’s going on with congress but we are going to wide spread poverty regardless of what the minimum wage is. Someone commented that minimum wage jobs are not meant to be permanent, well there’s many people who don’t have a choice and maybe have to work two or three jobs with more than one wage earner per household. It’s bad out there and raising the minimum wage is not going to make things better for anyone including people who make over a hundred thousand dollars a year. So all of the money is going to be reduced for everyone. In the 1980s, $150,000 had the buying power of $500,000 today so how will anyone benefit from rising prices. The only option is to do a price freeze which will cause many businesses to go under or higher less people. There’s no way to lift people out of poverty through raising the minimum wage.
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As a small business member on the finance side I am looking at not only the rates per hour going up, but the additional taxes & costs we have to pay as a business. We have the matching SS and Medicare taxes. Our workers compensation insurance cost. These all increase with higher wages. Our state & fed unemployment taxes. If we have to start laying people off, Our state unemployment cost goes up. The government needs to find a way to work with businesses to reduce these costs. The government must get inflation under control.
Can employee tips count toward the $15 an hour?
This depends on the industry and the state you’re in. For restaurants, for example, many states allow employers to pay a much lower minimum wage as long as tips make up the difference. For example in my state of Pennsylvania, employers can pay a minimum wage to workers of $2.83/hour as long as they’re tips bring them up to the state minimum wage of $7.25. Otherwise the employer has to make up the difference.
Illinois started raising minimum wage 2 years ago, so we have lived through this. Our wage increase included kids who have never had a job. We never did pay min wage, we started kids off at $2 over the minimum and gave raises based on performance from there at the 90 and 180-day marks. But once the base went up by mandate, as the article points out, all our other employees then wanted raises as a result and our labor costs went up overall by 30%. To offset that, we cut all of the under 18 positions, shut down low margin portions of the business, laying staff off, and increased prices everywhere else to pass the cost along. We felt terrible about cutting the jobs, but they forced us into this position because we couldn’t pass the increase along in those low margin areas. Common sense says businesses will still make a profit or they will shut down. If they are going to make a profit they probably cannot absorb the 30% increase we saw so they will pass it along in pricing which will just fuel inflation again and ultimately what costs $5 today will cost $8 tomorrow so the $15 wage will not give anyone more buying power. It will hurt retired people on fixed incomes. So our experience in Illinois would suggest this is a really bad idea and is going to hurt the people it is intended to help and also senior citizens.
Thank you for sharing your personal experience with this, Steve! We appreciate the comment.
This article pinpoints the delicate balance between raising the minimum wage & business expenses. As a very small business, this whole discussion has caused a great deal of anxiety for us, especially as we approach retirement and plan to pass the business to our son. We’re professional inspectors / consultants. Our salaries (per hour) are approximately 3-5 times the Federal minimum wage because of the high degree of education, continuing education requirements & certifications required for the services we provide. We’ve been unsuccessful in hiring additional inspector(s) to replace us because we’re now unable (due to recent inflation) to match the average salary for similar positions in our area.
If the Federal minimum wage is more than doubled to $15.00/hr., it will effectively put us out of business (this is our 28th year in business). We wouldn’t be able to raise our salaries enough to stay ahead of inflation that the wage increase WILL cause and raising our per hour inspection/consulting fees enough to cover higher wages will mean that fewer people will hire us – thus reducing our revenues. We’ve already experienced this recently when we had to substantially increase our fees because our expenses (especially our specialized insurance coverage) have increased about 15-25% – and we didn’t even increase our own salaries!
Minimum wage jobs were never meant to be careers, and that’s what people have made them. These entry level jobs were intended to give first-time & unskilled laborers job experience, so as they grew & learned new skills, they could eventually advance in the labor market.
Raising the Federal minimum wage will not lift people out of poverty because the cost of goods & services will be increased to cover the increased expenses of the business – thus keeping people in poverty. Only through education and gaining valuable job skills through job training will someone be able to improve their financial situation and lift themselves out of poverty!
I would have no problem with a wage increase, but include a payroll tax reduction. If one goes up, the other needs to go down.
As a small business, the added labor cost, employee tax increases would highly reduce the hours given to employees, reduce overall performance of the business due to added cost. Insurance on the general liability, work comp increases due to labor cost. I do not see how raising minimum wage will help overall poverty.
This will definitely hurt and even force my small family owned restaurant to close.
While we won’t feel the effect of this new law in NJ (min wage will likely exceed $15 in January anyway). It has severely hurt small companies like mine as we try to compete with larger mass merchandisers.