How Will Minimum Wage Increases Impact Small Businesses?



In 2019, 21 states and Washington, D.C. have raised their minimum wage or plan to do so. Cities like New York and San Francisco have already instituted a $15 minimum wage—pay boosts that stand in contrast to the federal minimum wage, which hasn’t been raised since 2009. But while workers in these places are rejoicing at the pay increases, small business owners may feel quite the opposite.


Opponents of raising the minimum wage say that these measures will hurt independent business owners who have to account for the pay increases. To offset rising wage costs, they may have to lay off valued workers or raise their prices, which will ultimately hurt the consumer and make it harder for brick-and-mortar businesses to compete with online retailers.


However, proponents say that raising the minimum wage is necessary to keep pace with increased living costs and that it can fuel broader economic growth since workers will have more money to spend. They also claim that employees with higher wages are happier and more loyal to their place of work, and thus perform better and more efficiently. With brick-and-mortar businesses citing customer service and valuable expertise as some of their biggest advantages over online retailers, high-performing employees are vital to success.


When it comes down to it, it is hard to say how the minimum wage increases will affect small businesses. There is limited historical precedent and economists are consistently divided over the impact of minimum wage boosts. A recent study from Harvard Business School that examined how minimum wage affected the restaurant industry found that only restaurants with a history of poor management were likely to suffer due to wage increases.


In preparing for a minimum wage increase, small business owners can start to think of creative, innovative ways to cut costs and provide some cushioning. While there could be long-term benefits in terms of retaining happier and more productive employees, the short-term effects could be stressful for even the most seasoned business owner.


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