When confronted with minimum wage increases, small business owners avoid laying off workers, but they pass off higher prices to consumers.
As one ice cream shop owner told Here & Now on WBUR, the minimum wage has unintended effects.
“I probably have to raise prices, and if I increase prices, my concern is that it will impact my customers,” Jane McGinn, owner of Sweet Jane’s in Queens, New York, said. “I wouldn’t mind paying more if people won’t mind paying more for a scoop of ice cream.”
If her customers don’t mind the added expense, weathering the increase won’t be an issue. Customers will only tolerate so many price increases, however, and not every store will keep every customer. Unless the extra cash for employees spurs workers to work harder, the increase will make it harder for businesses to stay profitable.
Despite the difficulties an increase forces on a business, it’s popular among voters. “When given a choice, voters will choose the one they think gives them and their neighbors more money,” Amber Phillips wrote for The Washington Post.
The minimum wage looks like a simple way to help the working poor. Among Americans of all political stripes, 73 percent supported a minimum wage hike to $10.10 hourly in 2014, according to the Pew Research Center. Though a $15 minimum wage might strike previous supporters as too high, 48 percent of all Americans still support a $15 minimum wage.
Passing a minimum wage with a state ballot initiative has driven minimum wage hikes, the Post noted, and that’s spurred some state legislatures and opposition groups to undermine larger hikes with a “competing, lower proposal.” If Republicans lose the minimum wage argument, they can salvage an impression of a victory by reducing a $15 or $12 hike to a $10 one. Or Democrats can push through a bill before a ballot measure and take credit for what public opinion made inevitable.
For all the political capital expended on the debate, relatively few workers in American earn the minimum wage. It also disproportionately affects young workers. Only 3.9 percent of hourly paid workers earned the minimum wage or less in 2014, according to the Bureau of Labor Statistics. About half of those workers are under 25 years old. The higher the minimum wage, the more difficult it can be for young workers to gain work experience or break into the labor market.
It can also be a fool’s errand. Venezuela, to combat inflation and economic decline, increased the minimum wage by 30 percent after a 25 percent increase in March.
