A Higher Minimum Wage Is Good for Business

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Small business owners realize the benefits of higher pay and a stronger consumer class.

Five years ago this month, the minimum wage reached the lofty sum of $7.25 per hour, the last step in a series of increases Congress set in motion in 2007. It hasn’t been raised since, and after taking inflation into account, the minimum has fallen to an adjusted level of only $6.54. That may change soon. Support for a higher minimum wage now comes from an unlikely source: the owners of America’s small businesses, and CEOs of some the nation’s largest and most respected brands. Meanwhile, recently published research shows that wage hikes at a modest level don’t kill growth and jobs. In fact, the states that have raised their minimums have enjoyed above-average economic growth.

Last week the American Sustainable Business Council and Business for a Fair Minimum Wage released a report of a scientific national poll of small business owners. The poll involved a live telephone survey of 555 small business owners, with between 2 and 99 employees each. Respondents spanned the political spectrum, all regions of the country and a broad cross-section of industries.

Three out of five small business owners (61 percent) favor raising the minimum wage gradually to $10.10 and then adjusting it annually to keep pace with the cost of living. This new polling data contradicts the oft-repeated claim that raising the minimum wage will kill profits, eliminate jobs and cut growth. Apparently the people doing the hiring and paying the difference don’t agree with those dour predictions.

Small business owners understand that their success depends on the overall health of the U.S. economy, since by and large they can’t export their way out of a slump in the U.S. And they recognize that, within limits, when workers are paid more, they spend more, and that helps the economy. 58 percent of small business owners believe that raising the minimum wage would increase consumer purchasing power. Similarly, 56 percent say that raising the minimum wage will help the economy overall.

When considering how a higher minimum wage might affect them, 53 percent said that it would lead to lower employee turnover, increased productivity and greater customer satisfaction.

Support for a higher minimum wage crosses party lines among business owners, even though it doesn’t among professional politicians. Small business owners are a largely Republican crowd, with fewer Democrats than independents. Even among Republican business owners, 49 percent support raising the wage, tied with the number who oppose it.

The sentiments voiced by small business owners were reinforced by business leaders of large and successful companies recently. At Gap, Inc., CEO Glenn Murphy announced the company would set $9 per hour as the minimum for U.S. based workers this year, rising to $10 next year. “When it’s all said and done, this is a race for talent,” said Murphy in a television interview. “And if we have the best talent in our office, in our distribution centers, in our call centers, and mostly in our stores, then we’re gonna win.” Murphy has seen the benefits: “We’ve got evidence already. Our applications, at Old Navy, since our announcement, are up 20 percent.”

Not to be outdone, IKEA President Rob Olson announced that IKEA will soon boost its minimum pay from $9.17 to $10.76 per hour. This will raise the pay of about 11,000 U.S.-based employees. The motivation? To “reduce employee turnover and bolster recruitment.” Even at McDonalds – widely derided as the poster-child for meager wages – change is underway. CEO Don Thompson recently said the company would support proposed legislation to raise the federal minimum to $10.10.

Frustrated with inaction at the federal level, many states and cities are taking action on their own to raise the minimum wage within their own borders. Seattle leads the pack, having voted this year to boost the minimum all the way to $15 per hour. Chicagoans will vote on an advisory ballot this November, and are expected to support a similar move. Ten states have passed higher minimums since January of this year, making a total of 22 states in all with minimums exceeding the federal requirement.

Recent economic research supports an increase. While too high an increase would damage economic growth, the range of increases currently being enacted are helping rather than hurting the economies involved. A recent study compared what happened to total payrolls in states that raised the minimum versus states that didn’t. The 13 states that raised the wage enjoyed nearly 50 percent faster employment growth than the ones that didn’t. This isn’t a theoretical analysis of what might happen; this is a data-based analysis of what actually did happen. Minimum wage hikes, at the modest levels that are getting voted into law, help economies grow.