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Will a Higher Minimum Wage Result in Fewer Jobs—and Small Businesses?

By July 25, 2017December 16th, 2022HR

Earlier this month, the governor of Missouri announced he was lowering the state’s minimum wage from $10 back to $7.70. The reason? He had heard from numerous small-business owners who said they couldn’t afford to pay the wage and stay in business. Although California and other states have committed to raise minimum wage to $15 an hour, small and midsized business (SMB) owners with limited resources appear to be struggling to meet higher wage requirements.

McDonald's KioskEven as SMB owners are asking for relief, some larger firms are implementing innovations that could reduce their dependence on workers. McDonald’s, for example, announced late last year that it was introducing automated ordering technologies, such as kiosks and mobile ordering. You may have noticed these kiosks in your local McDonald’s—I saw one while on vacation earlier this month.

At the time, Forbes reported the decision was made to counteract the minimum wage increase, given that kiosks could potentially reduce the required number of workers. While investing in automation is more expensive than a minimum wage worker initially, over time it more than pays for itself. (McDonald’s has since stated that it will move displaced workers to different positions, rather than reducing staff count.)

At the present, there is little to no consensus in the country regarding how minimum wage should be handled, except, perhaps, among the minimum wage workers who say it isn’t enough. The irony is that the minimum wage, which was introduced to stabilize a post-depression economy, was never intended to be the primary means of support for families over the long haul.

Even now, the percentage of workers earning minimum wage is 2.7 percent of the total working population—less than 10 percent of all hourly workers (per the Bureau of Labor Statistics; 2016 figures). Of this percentage, 74 percent work part time, 85 percent are unmarried, and approximately half are below the age of 25.

These statistics appear to support employers and business organizations who argue against minimum wage increases, citing negative impacts that outweigh the benefits. They may be right. The Congressional Budget Office predicted that raising the minimum wage to $10.10 could cost the economy 500,000 jobs, many of which might be lost due to the failure of small businesses in competitive, low-margin industries.

Given that SMBs constitute 99.7 percent of employer firms (per the Small Business Association), their health is important to the health of our economy. We at Marathon will be watching to see how states—and the current, pro-employer federal administration—will address the issue.

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