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Small Business Reaction Mixed on $15 an Hour Minimum Wage Proposal

  • President Joe Biden has called for the federal minimum wage to be raised to $15 an hour, and a Democratic proposal introduced in Congress seeks to phase this in by 2025
  • Several states already pay above the federal minimum wage, and some have established their own $15 an hour targets
  • Critics contend that a higher minimum wage puts a disproportionate burden on small businesses

Calls for a higher minimum wage have been gaining steam in Washington, with President Joe Biden calling for the federal floor to be raised to $15 an hour as part of a $1.9 trillion economic relief proposal and a Democratic proposal introduced Tuesday calling for the higher minimum wage to be phased in by 2025. The proposals continue a longstanding debate over whether a higher minimum wage will harm small businesses or create a powerful economic driver by improving the financial security of low-paid workers.

The federal minimum wage has not changed since it was set at $7.25 an hour in 2009. The Democratic legislation would incrementally increase the wage to $15 an hour by 2025, after which it would be indexed to median wage growth to direct further increases to keep pace with inflation.

Increasing the minimum wage has proved to be a popular idea with the populace as a whole, and more than half the states already pay a minimum wage higher than the federal floor. Several states and municipalities have also set $15 an hour targets. Connecticut’s minimum wage is currently $12 an hour, with scheduled increases that will bring it to $15 in 2023.

Proponents of the higher minimum wage, such as the Business For a Fair Minimum Wage coalition, say it would improve the economy by increasing the spending power of millions of Americans, improving worker retention, and minimizing the need to support minimum wage workers with social safety nets such as food stamps. Studies have shown that a higher minimum wage creates more equitable incomes, with the increase most likely to benefit women and people of color.

A Congressional Budget Office report determines that gradually increasing the minimum wage to $15 an hour by 2025 would result in higher pay for 17 million people and lift 1.3 million people out of poverty. Employers had also been under more pressure to offer better wages and benefits before the COVID-19 pandemic as a tight labor market made it more difficult to attract and retain workers.

The CBO report is not all positive, though. It finds that 1.3 million people would lose their jobs under the gradual increase in minimum wage, with a disproportionate effect on teenagers, part-time workers, and those without a high school diploma.

Business groups have often been critical of proposals to increase the minimum wage, saying it can be detrimental to small businesses in particular. the National Federation of Independent Business, which has expressed concerns over recent proposals, was also critical of Connecticut’s proposed minimum wage increase. In a 2018 op-ed, the group said small businesses and companies with many low-wage workers often have tight profit margins, forcing them to either cut employees or increase prices if the minimum wage goes up. NFIB also suggested that the pace of the increase was too rapid, saying other states and municipalities that ramped up their minimum wage saw a loss of low-wage jobs and hours.

Critics point out that larger companies are better able to weather minimum wage increases than smaller ones. They have also suggested that hiking the minimum wage rate could lead companies to turn to automation instead of human workers, result in higher costs of doing business, result in tax increases, and be a burden to nonprofits.

Despite these concerns, a CNBC poll in the first quarter of 2020 found that 57 percent of small business owners were unfazed by the idea of a minimum wage hike. These respondents said they could absorb the added costs, find new revenues, or that they were already paying their workers higher than the minimum wage. Just 8 percent of respondents said they would need to lay off workers if the minimum wage increased.

The $15 an hour federal minimum wage proposal faces stiff opposition from Republicans. Democrats could potentially opt to use a budget reconciliation strategy to approve the higher wage, or seek an end to the filibuster to eliminate the need to find 60 votes for a measure to pass.

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