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March 1, 2021, 9:28 a.m. EST

Small businesses benefit when wages rise

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By Zoe Willingham

For nearly a year now, small businesses owners have been struggling to keep their heads above water. As Congress looks for solutions to help the country recover from the COVID-19 crisis, supporting small businesses must be a priority and one of the best ways to do this is by raising the minimum wage to $15 dollars an hour. 

Breaking news: $15 minimum wage won’t make it into Biden’s $1.9-trillion COVID-19 relief bill — lawmakers have other ideas

About a third of business owners report that the pandemic has had a large negative effect on their operations, with small business revenue down more than 30% compared with before the coronavirus made it to the United States. Overall, there are 34% fewer small businesses are currently operating in the United States than at this time last year. Small businesses are the backbone of the U.S. economy, employing nearly half of all workers .

Increased spending

A $15 minimum wage will drive increased consumer spending to the benefit of small businesses. At the same time, workers making a fair wage are able and willing to work harder and be more productive, generating more value for business operators. These factors are just a few of the reasons that studies show that raising the minimum wage grows the whole economy with negligible job loss .

Even before the pandemic brought the country to its knees, the substandard minimum wage in the U.S. presented a major structural economic weakness. Since it was last raised to $7.25 in 2009, inflation has eroded the spending power of the minimum wage by 17 %—so a minimum wage worker today is earning just 83 cents for every dollar they earned 12 years ago.

For context, today, a full-time, minimum-wage workers cannot afford to rent a two-bedroom apartment anywhere in America. Even in Boise, Idaho—one of the most affordable cities in the United States—a two-worker household must make at least $15.94 per hour to support a child.

Raising the minimum wage would provide instant relief to struggling Americans and correct longstanding inequities. A minimum-wage increase would take a bite out of the gender pay gap, as women still earn 18% less than men. People of color—especially women of color—are more likely to work low-wage jobs. 

32 million would benefit

An estimated 32 million Americans would see their incomes rise, if the minimum wage were increased to $15 an hour—providing an instant boost to the economy by stimulating consumer spending . A $15 minimum wage by 2025 would generate $107 billion in higher wages for workers. A $1 an hour raise to a minimum wage worker increases annual household spending by $2,080 .

Minimum-wage workers, more than anyone, are likely to spend their raise on household necessities that they were previously unable to afford like repairs and electronics. Research also shows that much of the increased spending would go to the small businesses that are hurting most— restaurants

In addition to spurring increased demand, higher wages return dividends to employers in the form of a more productive workforceoffsetting much of the predicted payroll costs. Workers that deal with stresses related to poverty are unable to perform their best work and they are more likely to fall ill and call in sick. In contrast, workers that earn higher wages are less likely to arrive late or miss work. They also tend to be more invested in their job, working harder and committing fewer employee conduct infractions.

Paying higher wages also reduces the significant costs associated with employee turnover, such as recruitment, administrative work, and training. These costs total about one-fifth of the worker’s annual salary, which, for an employee paid the federal minimum wage, exceeds $3,000.  

Unfounded fears of job losses

Critics of raising the minimum wage, often try to stoke fears by arguing that a minimum wage hike will result in higher unemployment. But an exhaustive body of economic research disproves this. Studies of places that have increased the minimum wage have found insignificant impacts on the number of jobs, positive or negative.

Even sharp increases in the minimum wage have a minimal impact on employment levels. In the absence of major job losses, a $15 minimum wage would result in increased earnings among low-wage workers and a reduction in poverty and inequality as a result. 

Lawmakers must recognize a $15 minimum wage as a crucial part of any post-pandemic economic recovery plan Sens. Bernie Sanders, Patty Murray, and Chuck Schumer, along with their House colleagues Reps. Bobby Scott and Pramila Jayapal, introduced a provision into the American Rescue Plan—which is supported by 69% of business owners—that would raise the minimum wage to $15 gradually, starting at $9.50 in June and reaching $15 in 2025.

It would also eliminate the subminimum wage for tipped workers, who make $2.13 an hour , and disabled workers, who make $3.34 an hour. If the proposed minimum wage increase is enacted, it would give a raise to a total of 32 million workers and set the country on a path to equitable economic growth. It is especially urgent to act to raise the wage now to recognize the essential services that many low-wage workers provide during this time of crisis. 

Raising the minimum wage to provide instant relief to workers and supplying urgent grants and other financing to small businesses like the American Rescue Plan proposes will help the economy work better for everyone.

At a time when so many businesses are struggling, we can’t afford to suppress wages and with it, consumer spending. A $15 an hour minimum wage is essential to supporting small businesses and building a strong, long-lasting economic recovery.

Zoe Willingham is a research associate with the economic policy program at the Center for American Progress

Suggested reading

  ‘I will continue happily shopping there forever’: Costco customers react to retailer’s new $16 minimum wage

Low wages are just the start of the problems for millions of U.S. workers during COVID-19 — here’s why

U.S. Minimum Wages Have Already Jumped—With Minimal Costs to Business

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