When federal, state and local governments pass new minimum wage legislation or ordinances, it's a significant event for businesses of all sizes. Still, a higher minimum wage has a very different impact on small businesses compared to large businesses. To help small business owners understand how a higher minimum wage rate will impact them, here is a comparison of how minimum wage legislation affects businesses of different sizes.
Use of Minimum Wage Workers
Larger businesses use more minimum wage workers than small businesses. According to research from the National Employment Law Project (NELP), two-thirds of minimum wage earners work for companies with 100 or more employees.
This is a double-edged sword for small businesses. On one hand, small businesses have a different style of workforce and do not hire employees as often at the minimum wage rate. As a result, an increase in the minimum wage rate does not affect as many small business as large businesses.
Ability to Manage Costs
However, if a small business does use minimum wage workers, an increase in the minimum wage rate can be much harder for them to handle. Small businesses do not have the pricing power of larger companies, so it's harder for them to pass along the higher labor costs to their customers. Small businesses also cannot relocate as easily to a state or city with lower minimum wage rates. As a result, small businesses facing higher labor costs may be forced to lay off employees or not be able to create new jobs. A study from the University of Georgia found that a 10 percent increase in the minimum wage led to a 0.8 percent to 1.2 percent decrease in small business employment.
Support for a Higher Minimum Wage
Although an increase in the minimum wage can put cash-flow pressures on small business owners, they still support giving it a boost. A majority (60 percent) of small business owners support raising the minimum wage to $12, according to a survey from Small Business Majority. At large businesses, support is more mixed. While some large companies like Costco support a higher wage, others are lobbying against it.
Given a rise in wages could directly and immediately impact cash flow, companies of any size should prepare for the possibility of new minimum wage legislation in the future.
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