Effects of Raising the Federal Minimum Wage on Small Businesses

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There are a plethora of arguments in favor of and against the federal minimum wage. Some arguments contend that while a raise would positively affect minimum wage employees, it could negatively affect small businesses. Advocates for raising the federal minimum wage cite increasing workers’ ability to financially support themselves as the obvious reason to make such a change.
Opinions on wages and any changes in them are usually based on how workers, the economy, and small businesses will be impacted. The intention of this paper is to discuss three ways raising the federal minimum wage could affect small businesses: employment at small businesses might change, prices of products may be increased, and businesses might have to close.
An increased federal minimum wage would be advantageous to minimum wage workers; higher wages would allow workers to spend more money, which would benefit the economy. Small businesses, however, might not benefit as much. Research suggests that a higher federal minimum wage could force small businesses to change how they employ workers: they might have to decrease the hours employees work, stop hiring new employees, or lay workers off (Westfall 3). Business owners would not only have to adjust how many employees they have, and the hours they work, but they would also have to adjust how much they charge consumers for goods and services.
If the federal minimum wage is raised, the prices of products and services at small businesses might be increased to counteract labor costs (Luca and Luca 4; Westfall 5).
While minimum wage workers would make more money, some goods could still be considered expensive if their prices are raised. Higher prices and lower consumer spending would negatively impact the economy. According to some literature, though, raising the prices of goods isn’t the most drastic thing small business owners would have to do in response to a higher federal minimum wage.
Some authors and researchers suggest that raising the federal minimum wage could even lead to closures of small businesses, especially depending on location. This is because each part of the country is not economically or financially the same. Over half of the country has state minimum wages higher than the federal minimum wage (Luca and Luca 7). Some areas of the nation have higher standards of living than others, and while raising the minimum wage would help minimum wage workers in more expensive parts of the country, it could put financial strain on small businesses in less expensive parts of the country (Westfall 4).
In conclusion, raising the federal minimum wage could affect businesses in at least three ways: it could force changes in employment, price increases, and even cause closures. There are several other ways a higher federal minimum wage can affect small businesses, and some effects may be more positive and beneficial to small businesses than the effects discussed in this paper. Employees, businesses, and the economy would each be uniquely impacted by a higher federal minimum wage, so raising the federal minimum wage, or eradicating it and allowing states to set their own minimum wages will continue to be debated.
Works Cited

Luca, Dara L., and Michael Luca. “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit.” Working Paper, Harvard Business School, 2018, pp. 1-42.
Westfall, A. “Money in Whose Pockets? A Brief Insight on Current Minimum Wage Discussions.” Marriott Student Review, vol. 2, no. 1, 2018, pp. 1-6.

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