Minimum wage investigation reveals company claims are false

How much of an impact will a minimum wage hike have on small businesses? Not much, according to new research.

Although many states have their own laws, the federal minimum wage in the United States is $7.25 per hour for non-exempt employees. Proposals to increase this number often meet resistance from small business owners concerned about how they will cover the increased costs.

But new research from the University of Michigan and Carnegie Mellon University suggests that most small business owners may not need to worry about wage increases.

The study used data from six states that looked at independent business income, employment, and profits after a 10-year period of minimum wage increases. Specifically, the data compared the tax returns of businesses and workers in states that raised their minimum wages in 2014 with those that did not.

What they found was that, on average, independent businesses were able to respond to these minimum wage increases through higher profits. “We even observe a slight increase in owner profits on average,” the authors write.

Max Risch of Carnegie Mellon University and study co-author Nirupama Rao, assistant professor of business administration, managerial economics, and public policy at the University of Michigan, said these results could help policymakers determine the impact of wage increases on small businesses. He said it might be helpful to consider. We hope to allay the concerns of many small business owners.

“While the minimum wage does little harm to independent businesses and benefits some business owners, it meaningfully increases both income and employment for young and low-income workers,” Rao said in a statement. “It has been clearly shown that this has been done,” he said in a statement.

“Of course, these benefits for workers and owners are met by consumers, who have a much lower overall elasticity of demand for goods and services provided by independent businesses that are affected by minimum wage policies. looks like.”

However, when this data was analyzed by sector, clear losses were revealed for some small and medium-sized enterprises. Restaurants in particular are likely to be affected by these changes, with some small restaurants forced to close as wages rise.

“The strong negative impact on some small businesses helps explain some business owners' opposition,” Rao and Risch wrote.

Restaurants that survive tend to have increased revenue and better employee retention.

The authors conclude that although wage increases have a negative impact on a small number of independent businesses, on average small increases in the minimum wage are unlikely to lead to “distress for a large number of independent businesses.” .

The full results of this study are published in a research paper on Rao's website.