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Minimum-Wage Increase: A Blow to Small Businesses?

While critics say the House bill will hurt business owners, many companies are already paying higher wages.
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Despite warnings of job cuts and higher consumer prices if it becomes law, the federal minimum-wage hike approved Wednesday by the House may have only a muted impact on small businesses -- many of which have already adapted to higher state minimum wages raised over the past decade.

Among all states, only Kansas has a minimum wage below the federal level, while more than half have set levels above.

Mark McCurry, the president of A1 Express, an Atlanta-based delivery service, said all of his 100 employees, including several dozen drivers, are paid above the state minimum of $5.15 an hour.

"I don't know how you could pay anyone less than five bucks an hour in good conscience," McCurry said.

Critics acknowledge that the proposed increase would require minimal adjustment on Main Street. "A majority of workers are in states where the minimum wage is already higher, so it's not going to be felt that much," said Mike Donohue, a spokesman for the National Federation of Independent Business, a Washington-based lobby that has long opposed government-mandated wage levels.
 
Under the House bill, which passed 315-116 as part of the Democrats so-called "First 100 Hours" agenda, employers nationwide would have to pay workers no less than $7.25 an hour by 2009, up from $5.15 -- a 41 percent increase and the first in more than a decade.

The three-phase proposed hike comes without tax cuts or other provisions to offset higher labor costs. President Bush has indicated that he would only support a minimum-wage increase that included tax breaks for businesses. A statement issued by the White House opposed the House bill, calling for "tax and regulatory relief" for small business to accompany the increase.

A failed amendment introduced by Rep. Buck McKeon (R-Calif.), the ranking minority member on the House Education and Labor Committee, had sought to attach both tax and group health-care provisions to the bill.

Without those provisions, McKeon called the bill an "unbalanced, scaled down measure" that lacked necessary protections for small businesses. 

Rep. George Miller (D-Calif.), the committee's chairman, said raising the minimum wage was a matter of fairness and justice for low-wage workers, and not a bargaining chip for better health-care coverage.

"It says something about us as a nation when we're questioned all over the world about the economic disparities in this country," Miller said.

Earlier this week, a national coalition of more than 575 labor activists and unions rallied Congress to pass the increase with "no strings attached."

"For the past 10 years, Republicans leaders have held the minimum wage hostage," AFL-CIO president John Sweeney said in a statement. "Corporations and wealthy Americans have gotten their rewards. Now it's time to do the right thing for low-wage workers, with no payoffs to business."

Still, the U.S. Chamber of Commerce has said the hike will fall disproportionately on smaller businesses, which are less able to absorb a sudden boost in labor costs. It warned of a drop in job-creation plans, especially for low-paid, entry-level employees. According to the Small Business Administration, small businesses employ half of all private sector workers and create up to 80 percent of new jobs each year.

Despite those numbers, Michael Alter, president of SurePayroll, a small-business payroll firm based in Chicago, said he also doesn't expect the hike to have an impact.

"It's rare to find a small business with minimum-wage employees these days," Alter said. "For what I'm seeing, small-business owners are not too worried about it."

Of 1,000 small-business owners surveyed in December by Discovery Financial Services, 70 percent said raising the federal minimum wage would have little impact on their labor costs, suggesting few employed minimum-wage workers.
A separate study released in May by the Fiscal Policy Institute, a New York-based research group, found that small business grew faster in states where the minimum wage was above the federal level. Higher base wages also tended to improve job retention, saving businesses money needed to hire and train new workers, the study found.

Karen Kerrigan, the president of the Small Business and Entrepreneurship Council, a Washington-based policy group, said the impact will vary from region to region and job to job.

"It's a one-size-fits-all approach that's really going to hurt smaller businesses in disadvantaged areas and low-skilled workers the most," Kerrigan said.  

Kerrigan added that wage increases at the bottom of the pay scale could also put upward pressure on wages for higher-paid employees.

According to the Labor Department, roughly 2 million workers nationwide are paid the federal minimum wage or less, making up 2.7 percent of all hourly-paid workers. Half are below 25 years old, while four percent are 65 years and older.

Kerrigan and others expect the Senate to apply a more measured approach when it takes up the issue later this month, which will likely include economic relief for small businesses.

Unlike the House, Senate Democrats have only a 51-49 majority and will have to win over at least nine Republican members to pass legislation.

"All eyes are on the Senate," the NFIB's Donohue said. "We're hoping they can make this a slightly less bitter pill to swallow."   




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