MONEY

Why a Higher Minimum Wage Is Good for Small Business

One small business owner argues paying employees more will actually level the playing field.
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Like everyone else under the sun, entrepreneurs are inclined to look out for their own self interest, which is why you wouldn’t be surprised if many of them were skeptical of hiking the minimum wage. They're going to have to reach into their less-than-bottomless pockets to find the extra cash, after all.

But not every small-business owner who runs the sums on a minimum wage rise comes to the conclusion that bigger paychecks for low-wage workers make it harder to compete in an already cut-throat marketplace. In fact, on Slate recently, restaurateur Jay Porter makes the exact opposite argument: Raising the minimum wage will actually make it easier for small businesses to compete with the big guys.

Subsidizing the Big Guys

Porter's complete article is well worth a read, but the gist of his argument is that the rock-bottom minimum wage across most of the country makes it easier for big companies, with their economies of scale and ability to scour the globe for cost-cutting opportunities, to lure customers with insanely low prices, resetting expectations in a way that's bad for small business. How? Bigger competitors start by passing off costs to the government--i.e. the taxpayers, i.e. you and me.

"Subtly, a nonlivable minimum wage--and in most areas minimum wage is well below a livable wage--is also a kind of passing off of costs by the big guys. Though their employees work a full-time job, they can’t afford health care, education, quality food, or a healthy routine. That leads to a situation where 52 percent of the families of fast-food workers are enrolled in a public assistance program and the average Walmart employee costs taxpayers $5,815 in subsidies," Porter writes.

Can small business owners offer nonlivable wages too? Sure, but they can’t really decide to ship production to some remote corner of the globe, muscle suppliers into dropping prices, or employ small armies of accountants to come up with complicated schemes to avoid paying the tax bill that underwrites the public benefits payouts that result.

What’s a Burger Really Worth?

The combined power of these advantages allow the big guys to offer rock-bottom prices, which in turn train customers to expect something for next to nothing, making it harder for those without a leg up to compete.  

"For example, the reason it's hard to sell a really good, locally produced burger in many markets isn't because the product isn't worth it; even $10 or $12 for a handcrafted product that includes 6 ounces of grass-fed beef is a steal compared with what you can buy at Applebee’s or Olive Garden for that price,” writes Porter. "The reason it's hard to market a high-quality burger is that so many companies sell burgers so cheaply--regardless of how bad they are--that we think a burger 'should' cost only $5 or $6."

Raise the cost of labor, Porter says, and you won’t make the playing field as level as a regulation pool table, but you will give small business owners a fairer shot at competing.

Skeptics might note that, assuming small and big businesses often pay the same wages now and will pay the same wages after an increase, it’s hard to see how a higher minimum wage won’t just result in prices of restaurant meals and consumer goods going up across the board. A fast-food burger, for instance, might rise to $7 and a artisanal one to $15. 

Porter concedes that "everyone will have to raise prices" but feels that "the prices the big guys charge for their products will be closer to their true costs." That's already a reality for small businesses, since they have less ability to manipulate their costs, he believes. Put everyone in the same boat and Porter is hopeful. 

"Like many small-business owners, I know that if the big guys have only some advantages over my team, we can make up the difference in quality, service, and heart," he concludes.

What do you make of his argument? Let us know in the comments.



IMAGE: Andy Thrasher/Flickr
Last updated: Apr 24, 2014

JESSICA STILLMAN | Columnist

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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