A Hike In The Minimum Wage Could Be A Huge Boon To Small Businesses

Business Insider

During the State of the Union address President Barack Obama proposed raising the hourly minimum wage $1.75, from $7.25 to $9.00. 

This would be a significant move, and conveniently there's an immense amount of research available pertaining to its effects. 

Studies found that an increase in the minimum wage didn't generally lead to mass terminations of employees, but also may lead to a decrease in the number of teenagers in the workforce. We also know that a number of major companies rely on minimum wage employees.

We know that the U.S. minimum wage is low compared to other rich nations, and that the proposed hike would bring the current minimum wage in line with historical levels

One major result of a hike in the minimum wage is that it has a similar impact as a stimulus package, a study from the Chicago Federal Reserve Bank found. Essentially, households impacted by a $1.00 increase in the minimum wage use that additional revenue to make purchases of large durable goods, often home appliances and especially cars. This net effect has a positive impact on the economy in the quarters following a minimum wage increase. 

It's clear that adult workers largely benefit from the hike, big box retailers and chain restaurants would have to make adjustments, and retailers of large durable goods tend to see immediate sales benefits.

Still a major question that hangs over the debate is the impact that a hike in the minimum would have on small businesses.   

A 2006 study from the Fiscal Policy Institute found that states with minimum wages above the federal level had faster small business and retail job growth.  

Here's how small businesses fared in states with a state minimum wage hike compared to states that just kept the federal minimum in the years of interest:

 

Small businesses in states where minimum wage was higher than in surrounding areas saw faster growth, more employees and a higher annual payroll growth. 

The performance is even more significant in the small business retail sector:

While the 40 states without a higher minimum wage saw a contraction in the number of establishments, states with a higher minimum wage saw slight growth. 

Even more, small businesses in states with higher minimum wage performed better in all categories. 

The prevailing wisdom that higher wages hurts small business owners doesn't really hold up. 



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