Would Raising the Minimum Wage Derail Small Businesses?
(Story updated with additional comments from the franchise industry.)
NEW YORK ( TheStreet) -- President Barack Obama offered a minimum-wage proposal Tuesday night in his State of the Union address, in which he spoke of how the country has emerged from the rubble of economic crisis , his hope to allow families to more easily refinance their homes and the need for deficit reduction, among other economic issues.
While it's questionable whether a minimal-wage proposal would actually pass in Congress, small-business owners were divided on whether raising the federal minimum wage from today's $7.25 an hour to the president's suggested $9 would be beneficial or harmful.
It's no secret many small businesses are still struggling from a slow economic recovery. Considering payroll is one of the biggest fixed expenses to businesses, some say raising the minimum wage could be a disastrous hit to cash flow and future hiring.
"The law of demand always works: The higher the price of anything, the less that will be taken, and this includes labor," William Dunkelberg, chief economist for the National Federation of Independent Business , said in a statement. "Firms cannot pay a worker more than the value the worker brings to the firm. Raising the minimum denies more low-skilled workers the opportunity to get a job and receive on-the-job training. Raising the cost of labor raises the incentive for employers to find ways to use less labor."
In the restaurant industry, rising food costs and other business expenses such as health care and taxes mean operators are likely to resort to higher menu prices, says Patrice Rice, CEO and founder of Patrice & Associates , a hospitality-recruiting franchise in Dunkirk, Md.
"Raising the minimum wage will not deliver customers with more money in their pockets. It will continue to discourage small businesses from hiring or even keeping minimum wage personnel. Increasing the minimum wage does not help stimulate business," said Earl Wertheim, a franchise developer for The UPS Store .
Sean Falk, a multi-unit franchise owner of Salsarita's Fresh Cantina, Great American Cookies, Mrs. Field's Famous Brands and Pretzelmaker, says most of his employees are part time. "Requiring me to pay a high-school student, who I am training to be a worker in our society, a minimum wage of $9 will crush my business."
"If my employees have a great work ethic, then I immediately pay them more," he says. "If they are poor performers, then paying them $7.25 or $9 per hour will make no difference in their performance, but it will erode our ability as small-business owners to make a profit and, therefore, open new locations."
Responses to the minimum-wage proposal were primarily negative on social media. Here's a few comments via Twitter:
- @Ralph_Boccella: And increase in min wage dn cost jobs RT @BloombergView: The "small business is the creator of all jobs" meme is. not. correct. #sotu
- @kendallmejiaa: Yeah let's raise minimum wage to $9 and watch all our small business close and hire less #SOTU
- @bjaday: Raise the minimum wage and small business will have to hire less workers. And that helps how? #SOTU
- @CDR48fan: Still not sure how I feel about a $9 minimum wage and its effects on small business and consumer prices from State of the Union. #SOTU