There has been speculation for a long time on whether the minimum wage is livable and if it represents purchase power. A minimum wage worker would be considered a working-class or blue collar American. The federal minimum wage has existed since 1938 and has been adjusted throughout the years for inflation, with its value constantly changing.  On the other hand, a small business is a privately-owned firm with typically less than 15 employees, many of them who make minimum wage. Small businesses are extremely significant to the American economy; per the U.S Small business administration (SBA), small businesses represent 99.7 percent of all employer firms (Brown).   In today’s modern society, the minimum wage concerns young adults, small business owners, unskilled workers, the unemployed, and those living in poverty. The federal minimum wage is still currently $7.25 but some states have legislated their own state minimum wages in the past. Going along with the minimum wage, Common opinions of low-income workers are that they believe their work reflects great effort of someone that should deserve $15 dollars an hour. A small business could have trouble surviving if they must account for a large increase. The effects of raising the minimum wage across the country on small business shows that employment will be more selective, the number of jobs will change and operating costs will be higher. This in turn will weaken the operation of small firms and they will be in disadvantage to corporations. The federal minimum wage should remain at $7.25 an hour.

When the minimum wage increases, this will naturally make employment more selective. Employers will want to pay for employees they feel are most deserving and more importantly the most productive as possible. In a Fox News video, Christian Dorsey of the Economic Policy Institute claimed that the minimum wage was as low as ever with productivity as high as ever (MarlinWire). This came at a time when the minimum wage wanted to be pushed to $9 an hour by 2015. That shows that executives are relying more on equipment rather than humans. This will leave more people out of work if humans became more expensive and are replaced with highly productive machines. If even the most basic jobs became competitive, it will leave double the people out of work along with the natural unemployment and the increasing population of unemployed annually. With more and more states increasing the federal minimum, CEO’s of America’s department stores will make basic occupations more competitive for hire. This will leave certain subgroups of people even worse off than before and people who were already unskilled or faced certain limitations will have more difficulty finding a job. Recently, the California government reached a deal to adopt a $15 minimum wage by 2022, but many San Francisco small businesses have already payed that toll for many years (Adams). As more state minimum hikes begin to increase, many owners fear they won’t be able to keep up with the required minimums (Adams).  At a small business like Coles Hardwood, the owner knows he could wind up losing sales but he knows it is hard to live off the minimum wage since the city of San Francisco requires a high cost of living (Adams). There leaves the decision of the employer of whether he should increase his sales or lay off some of the workers. The productivity for many workers has reflected the less than eight-dollar federal wage it still is. College students and younger adults will be at a disadvantage to older and more experienced professionals when searching for employment. Since wages are higher, younger workers could be encouraged to receive more training to live up to the potential earnings, taking away precious work time that they could have gained. Many low skilled workers take pride in what they do and others do not have a passion for it, and it is a manager’s decision to decide what is best for the business in terms of getting the best workers. When the minimum wage increases, the firm should make the decision of giving up an employee considering the opportunity cost of giving up a worker with their productivity.

The relationship between an employer and an employee is crucial when considering a wage increase. When the two have a close relationship, or have had one for a long time, it can affect who is hired and what is looked for in an employee. Small firms typically have employees with specific or general ties to the firm whether its family or community. A study was concluded in 2003 of the consequence of the minimum wage on 55 firms. Most private sector firms in the early 2000s had between 10-50 employees and had significant decreases to employment tribunal (Arrowsmith). This means there were little to no reports of unfair treatment or discrimination of employment. Minimum wage workers benefit more when they work for small businesses. Since large corporations have many employees, many of them can feel neglected of their needs. The workers were productive, treated fairly, and healthy. This shows that job security is prevalent is small business. Employers are more comfortable and flexible with their employees who know how the system works. These employees are the ones that climb the ladder in the firm. A manager is more likely to pay the increase for an employee that has years of experience in the firm rather than recruit someone else for the job. Also, when paying the current minimum wage, firms create economies of scale, a term for incentives. The opportunity cost of paying a higher wage is the factors of production especially capital and the productivity received from machinery that could generate a better product. If a person must be payed $15 dollar an hour, an employer would rather pay those 15 for equipment or other costs. Even when a higher minimum wage of $15 an hour would be placed, employers would have to cut hours of other workers, leaving them with less salary. A study was made by John Horton from NYU and he states, “When firms were for to pay a higher minimum wage, they hired more efficient workers and the hours of those employees who were already making the minimum wage before” (Schieber). Employers will become more selective as to who they hire because the workers’ time is essentially a waste of money if it the productivity expected is not reached. To say the least, the increase in a minimum wage changes how firms will hire their workers and employers are more prone to pay for more productivity for their dollar not matter if it is with a human or physical capital.  

Another effect of the minimum wage increase in several states is the sudden result of the number of jobs available. As mentioned earlier, employers will reconsider how they hire someone and who they hire if they are forced to pay more. There are thousands of Americans currently who shift around through part time jobs that don’t pay much and do not live stables lives. Many have other responsibilities and must move around from state to state to find the best opportunities if even available. One of the co-owners of a Charlotte based brewery believes that a $15 an hour wage could reduce the staff turnover rate, generate consistency for a long period of times, and generate employee investment (Quittner). Employers who aren’t profit based driven, care about the stability of the employee, and are more concerned with a staff building relationship would be in support with $15 an hour for an employee when operating their small business (Quittner). This more than likely keeps an employee in a stable condition without moving around and makes their personal lives much easier. By keeping their employees with a higher wage, managers would essentially get the best output from that. With that though, other workers with weak resumes introduced to the labor force will have a difficult time finding a job even of that nature. The president of MarlinSteel for instance, is in favor of the current minimum wage as it is because teens and unskilled workers are already highly unemployed and raising it would make them less marketable (MarlinWire). Basically, the workers’ value in the labor force would weaken as it already was weak. Many people are forced to enter the labor force at an early age and they cannot support themselves if they are discriminated logistically. That leaves the lower class and people in poverty worse off than before.

Although the fight for jobs will be competitive for the most part, there are some people who do not believe that the minimum wage is an indicator of a strengthened economy or influences employment. This opinion is credible from economists who have made economic contributions since the 2008 economic crisis. The research found by multiple economists (Dube, Lester, and Reich) since the 1990’s shows that employment is not haltered by the minimum wage since the cost of wages are the least weighted in terms of a firm’s operations and day to day costs, considering other costs (Schmitt). Along with higher prices, the work place in a small business has generally changed in the past two decades. Overall for minimum wage workers, there has been a reduction in hours worked, reduction in non-wage benefits, and the amount of training (Schmitt).  So essentially, a manager will be paying for the more prepared and productive worker when paying more for a worker. When paying more for production, you get more for what you pay for but that does not necessarily mean more revenues. With industries becoming more competitive due to the difficulty of getting a job, productivity will be higher than ever in return due to expectation, leading to the best products and services. Increasing the minimum wage will increase a worker’s motivation and in return a better service. That will strengthen the role of small business on the economy. 

Lastly, the minimum wage increase will change the operating costs for every small business. McDonald’s, although not a small business firm, has already seen the effects of what a minimum wage would do to pricing in general. Per a study made by James Sherk, a $15 minimum wage would force McDonald’s prices to go up 38 percent (Adelmann). For instance, a 10-piece Chicken Mcnuggets, currently priced at $4.49, would jump to $6.20 and so on for other products. Other notable businesses like Chick-Fil-A and Starbucks would be affected as well. The increase in percentage is much higher than many old-school economists had concluded, and it puts the lie to union claims that raising the minimum wage to $15 an hour would result in a transfer of wealth from rich business owners to low paid workers (Adelmann). It is concluded that if there were to be a transfer of money, it would be from their customers. Former McDonald’s CEO Ed Rensi told Forbes Magazine in 2007 that “if a franchise has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirements eats up three quarters of the owner’s profitability” (Adelmann). So essentially, owners would not be making much. Rensi then said “I guarantee you if a $15 minimum wage law is passed, you’re going to see a job loss like you cannot believe. It’s cheaper for a franchise to buy a $35,000 robot than it is to hire an employee who’s inefficient making $15 an hour bagging fries”. Consequently, thousands of McDonald’s restaurants nationwide are replacing cashiers with automated touch-screen kiosks in places where minimum wage laws are already in place like New York and Chicago (Adelmann). That in result would be more unemployment. Although Rensi was a well renowned CEO during his tenure with McDonalds, there are other leaders who believe that a higher minimum wage is good for business. 58% of small business owners believe that raising the minimum wage creates higher consumer purchasing power, as well as productivity which lead to consumer satisfaction (Brodwin). Small business owners have had some support from other large businesses for the increase; CEO Glenn Murphy of Gap specifically said in a television interview, “When we have the best talent in our office, in our distribution, in our call centers, and mostly in our stores, then we are going to win” (Brodwin). The idea is that will generate more profit to make up for the higher costs. Overall, the effect of raising the minimum wage will lead to higher costs of goods and services and a transfer of wealth. It could also increase productivity but lessen employment.

Currently, several states have increased their minimum wage laws that have affected almost 5 million people. Many people who work minimum wage jobs live their lives dollar by dollar and some struggle to survive. About 15 states across the country have increased their minimum wage since January of 2016 (Kimball). Some significant states on the list include states like California and Massachusetts; These places have a higher cost of living and they are very expensive places for a minimum wage worker. These states each increased their minimum wage by one dollar to ten dollars an hour (Kimball).  This directly affects the operation of small business because costs for employees is now higher and the management of the business must make certain financial decisions that can affect the profitability of a firm.  Many leaders of small firms believe that the minimum wage when lower is stronger for their business and allows them to take advantage of economies of scale. When managers of small firms are dealing with lower wages to employees, they can afford more capital and opportunity to improve the firm. Large Corporations often aren’t affected as much by the raise of a minimum wage because many are more profitable as an advantage. The economic growth of a country is reflected by the success of small business and the success of small business can create jobs. It starts when the minimum wage is livable and when workers are treated right. A profitable small business can be considered an American Dream and the foundation of a strong economy. The minimum wage has a big impact on the lasting impact of the firm and people will be more willing to work if it provides them incentives. Those who think the wage should stay as it is believe that it is an entry level position/ basic job and should not compare to what people in careers make. Those who support a higher wage agree that the current national wage is not livable; meaning people in poverty cannot support themselves for survival with that wage. But, when you have higher wages towards your employees especially with the entry level jobs, it leads to lower profit.  Raising the minimum wage will primarily effect the competition of employment, the number of people in the labor force, and the costs of production. The increase in the minimum wage is beneficial because it encourages workers but the minimum wage should stay the same if employers want to generate the highest revenues with the least amount of costs possible.  The goal for every firm is to maximize their profit and small businesses are better off when the minimum wage is at $7.25 or at a relatively low minimum.
