How does an increase in minimum wage impact small business?

| Feb 4, 2021 | Business Law | 0 comments

The discussion about the minimum wage is ongoing in the U.S. Many people want to raise the wage, but those who oppose it say it will destroy small businesses.

According to CNBC, both sides have valid arguments about the impacts of a minimum wage increase.

Increases happen often

One thing you should note about minimum wage increases is that they occur all the time. At the beginning of each year, there are at least some states that raise their minimum wage rate. However, it rarely causes any concern because these increases are small.

With a small increase in the minimum wage, small businesses barely feel the impact. They can easily adjust to it and keep on operating with no ill effects. They absorb the costs or find other ways to compensate for the extra money going out of their businesses.

In a lot of situations, small business employers are already paying employees more than the new minimum wage rate, so there is no impact at all.

The issue

The problem with minimum wage rate hikes comes when the increase is large. It is much more difficult for small businesses to adjust to a huge increase in wages because they cannot as easily absorb the costs. Trying to offset the costs could result in other issues, such as increasing consumer prices that will snowball into a loss of business.

To combat, small businesses will lay off employees or reduce their hours to lower the overall employment costs. This, too, can snowball into other issues, which would have a negative overall impact on the business.