Raising the minimum wage: A risky campaign promise for small businesses owners?

By Angélica Serrano-Román | Six Feet Forward

President Donald Trump and Democratic challenger Joe Biden both favor raising the minimum wage but with different approaches — strategies that could get voters to cast ballots.

During the final presidential debate last week, former Vice President Biden said the government has to help small businesses by providing economic assistance like the Paycheck Protection Program, a Small Business Administration (SBA) loan to keep workforce employed during the Covid-19 pandemic. He also proposed a $15-per-hour federal minimum wage.

Trump disagreed, saying the increase cannot be nationwide but instead take place in certain states. “Alabama is different from New York. New York is different from Vermont. Every state is different.”

“We have to help small businesses by raising the minimum wage? That’s unhealthy. I think it should be a state option. How you help small businesses when you are forcing wages,” said Trump, while arguing that a nationwide increase will lead to layoffs.

Biden said that argument has is not backed by data. “There is no evidence that raising minimum wage businesses will be out of business,” he said.  

The last time the U.S. Congress acted to raise the federal minimum wage was in 2009, which increased the minimum wage to $7.25. Before, it was at $6.55 in 2008 and $5.85 in 2007.

There is no formal evidence indicating that increasing the minimum wage will decrease employment. But surveys from organizations including the American Economic Association (AEA) and the National Association for Business Economics (NABE) have explored a possible relationship between raising the minimum wage and a decrease in payrolls.

Holly Wade, chair of NABE’s Business Conditions Survey Committee and executive director of the National Federation of Independent Business (NFIB) Research Center, said the NFIB surveyed 92 businesses in 2017 on possible adjustments in their operations if a $15-per-hour minimum wage is approved. 62% of them answered they would be negatively affected.

Changes in business operations vary, but one of them is reducing employees and work shift hours, Wade said to Six Feet Forward.

She also said that another concern is the possibility of reducing entry-level positions and adjusting wages above $15 for experienced employees. “Those types of impacts are critical for everyone entering the labor market and gaining experience,” Wade said.

Experts also point out that the economic situation may worsen if the minimum wage increase is approved while businesses continue to struggle due to the coronavirus pandemic.

Kate Cooney, Senior Lecturer at Yale School of Management, told Six Feet Forward that it’s time to increase the minimum wage, but has to be done thoughtfully.

“Perhaps, given the unprecedented times, there could be some creative blending of expanded Earned Income Tax Credit (EITC) wage subsidies to get the minimum to $15 but a phase in the employer portion slowly,” Cooney said.

Cooney, who investigates the intersection of business and social sectors, said federal minimum wage hikes are phased in over time, so the increase would not go from $7.25 straight to $15. 

She also said the unemployment insurance supplement of $600 enacted by the federal government for the first months of the coronavirus lockdowns acted like a wage increase for the lowest paid workers, creating over 100% income replacement. 

“In other words, providing extra income flows to lower-income households will allow them to stabilize and save. When the COVID restrictions lift, a larger surge of spending could result in built-up savings that will power us out of the recession more quickly,” she said.

By the time wage levels rise, the Covid-19 crisis may be behind us, she argued.