Businesses Agree—It’s Time To Raise the Minimum Wage

The last barricades in the right wing’s fight to prevent increases in the minimum wage are starting to fall, as even the businesses that minimum wage opponents are supposedly protecting from having to pay a decent wage are saying, “Enough! It’s time to raise the minimum wage.”

The American Sustainable Business Council and Business for a Fair Minimum Wage conducted a national phone poll of 555 small business employers and found support for raising the minimum wage to $10.10 an hour in every region of the country. Two thirds of surveyed businesses in the Northeast were in favor, and even in the South, 58 percent of small businesses approve of President Obama’s proposal to raise the minimum wage in steps and then index it to inflation.

Unsurprisingly, these business owners are not simply being altruistic. Most of them understand that their businesses will benefit in two ways when millions of poorly paid employees get a raise. First, higher pay would mean lower employee turnover, increased productivity and higher customer satisfaction—all of which helps employers’ bottom line. Second, most of the owners surveyed agree that a higher minimum wage would increase consumer purchasing power and help the economy. Putting money in the pockets of millions of potential customers means more sales and higher profits.

A recent, remarkable blog post by Frank Knapp, Jr, the president and CEO of the South Carolina Small Business Chamber of Commerce, which represents 5,000 businesses, lays out the truth about the impact of a minimum wage increase:

“This will put more money in the hands of 300,000 South Carolinians who make less than $10.10 and they will spend it right here in our local economies. This minimum wage increase will also benefit another 150,000 employees who will have their wages adjusted. The resulting net $450 million increase in state GDP will be good for small businesses and good for South Carolina.”

Knapp knows from experience that businesses will not react to a minimum wage increase by laying off employees or jacking up prices (both of which would lead to less business):

“When it comes to small businesses, some complain that restaurants in particular would be adversely impacted and would lay off workers and/or significantly increases prices. But we know from past and current experience that layoffs and prices do not spike as predicted because of mitigating factors such as increased consumer demand and cost savings from lower worker turnover.”

Pi Pizzeria, a successful chain of restaurants that recently voluntarily raised its own minimum wage to $10.10 an hour, is a perfect example of how businesses actually do adjust to higher minimum wages. The end result was increased employment, not layoffs:

“As anticipated they reduced turnover and the related costs of training new workers. They also reduced the inevitable costs of inexperienced employees – mistakes and product waste. Avoiding these expenses more than outweighed the incremental cost of a minimum wage increase. In addition, customers noticed the difference in worker morale and service and became more loyal. There was no need to raise menu prices and employees are being added, not eliminated.”

Despite the constant refrain from business lobbyists that higher wages will mean fewer jobs, the great weight of economic research over the past 20 years overwhelmingly concludes that minimum wage increases have no significant effect on employment. The latest research, by Evan Totty of Purdue University’s Krannert School of Management using new econometric techniques, shows that “the average effect [on employment] of a modest increase in the federal minimum would be near zero.” Businesses adjust to having to pay higher wages, but they don’t do it by reducing employment.

Even business lobbyists in Washington are starting to see the light. Container Store CEO Kip Tindell, the incoming head of the National Retail Federation, reportedly “pledged to try and push the retail store trade group to change its stance against raising the minimum wage,” and says it’s “unbecoming to speak out against raising the minimum wage.”

I look forward to the day when the business lobby in Washington wakes up to that reality.