How Does Raising the Minimum Wage Affect Your Business?
By ensuring workers are paid a fair wage, minimum wage policies can reduce financial strain and promote overall worker well-being. They can also increase worker satisfaction, improve morale and decrease turnover rates. Staying up-to-date on changing laws and implementing pay equity programs can help businesses mitigate the effects of a minimum wage increase.
Increased wages for low-wage workers
A major reason for calls to raise the minimum wage is that it will improve the economic well-being of low-wage workers. However, the impact on these workers varies across industries and states. This is because of different market conditions and the extent to which businesses pass on labor costs to consumers.
Some studies have compared the behavior of workers in counties in a state that raised its minimum wage with those in contiguous counties that did not. These studies usually control for geographic differences and, to the extent possible, cultural differences between the treatment and control groups.
Other research shows that increases in the minimum wage decrease smoking prevalence and decrease the number of days with health limitations, including absence from work, among low-wage or low-skilled workers. It also increases birthweights among their infants. This evidence should inform public discussions about the benefits and costs of raising the minimum wage. Nevertheless, some employers argue that raising the minimum wage will increase operating expenses and may force them to cut jobs.
Increased wages for middle-wage workers
In a labor market with fixed wages, increasing the minimum wage increases the wages of those at or below the new level. This increase filters up through the firm hierarchy, leading the next tier of higher paid workers to raise their wages as well. The ripple effects continue in this fashion, with the effect diminishing as the pay scale moves up the firm hierarchy.
Whether or not increased wages are passed on to consumers in the form of higher prices remains a complicated question, and depends on many factors such as regional inflation rates and aggregate incomes. It may also depend on the type of firm and its competitiveness.
In any case, increasing the minimum wage leads to lower turnover rates which saves a business money on replacement and training costs. This can make a significant impact on the bottom line, especially in retail businesses where employee churn is high. For small businesses, maintaining competitiveness in the market is critical to staying afloat.
Increased wages for high-wage workers
Increasing the minimum wage may also increase wages for workers higher up on the pay scale. This can create discontent among employees if they receive a larger pay raise than their co-workers. This can lead to turnover, which can be costly for businesses. To avoid this, it is important to keep up with wage and hour laws and ensure that your business’s salaries and benefits are in compliance with the new standards.
A common concern is that raising the minimum wage will decrease employment opportunities. The idea behind this logic is that a perfectly competitive labor market forces employers to pay employees no more than their productivity. When the minimum wage is set above this level, employees will become too expensive for their employers to employ them.
However, the pass-through of increased wages to prices is relatively small, particularly in food services where most minimum wage workers work. Available data suggests that the scheduled Raise Up NY increases will add to CPI in food away from home only by 0.6 percentage points between 2024 and 2026.
Increased wages for low-skilled workers
When low-skilled workers earn more money, they spend it on things like housing, food, and gas. This boost in demand stimulates the economy and creates jobs. This is why the majority of small business owners support increasing the minimum wage.
However, increasing the minimum wage would also increase costs for employers who employ these workers. Consequently, businesses may choose to hire fewer workers. In addition, businesses might raise prices to offset the increased cost of labor. This could hurt families who rely on these incomes for basic necessities.
A minimum-wage increase would also affect teenagers, who are especially vulnerable to ripple effects. Teenagers need these entry-level jobs to gain experience and build fundamental work skills, such as teamwork and punctuality. Moreover, these jobs provide teens with valuable life skills that they cannot learn in the classroom. A large wage hike would decrease teenage employment and leave them with fewer opportunities for growth in their careers.