Why a Minimum Wage Increase Divides Small Business

As U.S. income inequality has widened, and economic studies have challenged the long-held notion that minimum wage increases suppress employment, small business owners and lobbyists are turning up on both sides of the minimum wage debate. Photograph by Michael Turek/Gallery Stock

The $7.25 hourly federal minimum wage has not increased since 2009 and represents less, when adjusted for inflation, than minimum-wage workers earned in 1968. As of January, 18 states plus the District of Columbia had minimums over the federal rate, and five states have no minimum wage laws, according to the U.S. Department of Labor.

Historically, efforts to raise minimum wages have drawn staunch opposition from small business advocacy groups. But as U.S. income inequality has widened and economic studies have challenged the long-held notion that minimum wage increases suppress employment, small business owners and lobbyists are turning up on both sides of the debate.

The traditional stance is represented by the National Federation of Independent Business, which has put considerable effort into fighting half a dozen state minimum wage increases in the Northeast this year, says Jack Mozloom, the group’s regional media manager. “We’re trying to put that fire out in a bunch of different places,” he says, including New York, New Jersey, and Connecticut. “Our members are nearly unanimously against an increase, not only because they don’t have the sales volume that would justify an increase in their labor expenses, but because it tends to inflate wages up and down the scale.”

Not all small business owners and organizations share that conviction. In contrast to her counterparts at the U.S. Chamber of Commerce, which has staunchly opposed minimum wage increases, Margot Dorfman, chief executive of the U.S. Women’s Chamber of Commerce, supports an increase. “Raising the minimum wage would increase the tax base and decrease the need for government relief,” she says. A good portion of her 500,000 members, about three-quarters of whom are female business owners, have worked hourly jobs at some point. “Oftentimes the women who are working are the ones being paid the minimum wage, and they’re single parents who need to put a roof over their head and feed their children.”

Holly Sklar, founder of Business For a Fair Minimum Wage, aims to debunk the notion that all business owners oppose minimum wage increases. “There was a portrayal of too many policies as business on one side and everybody else on the other side,” she says. The group, which has an annual budget of less than $150,000, is funded by grants and individual donors; organized labor does not contribute to its funding, she says. Founded in 2006 to fight for the most recent federal minimum wage increase, in 2007, it’s backing proposed legislation that would boost the federal rate in three 85¢ steps, to $9.80 an hour, over three years, then adjust it annually to keep pace with the cost of living.

Its argument, “an economy that’s based on a much more economically viable connection between what used to be called a fair day’s pay for a fair day’s work,” has caught on with the 4,000 organizations and individuals who have signed on with her network, including Lew Prince, a co-owner of Vintage Vinyl, a $1.7 million independent music store in St. Louis. He pays his 16 full-time employees $12 to $17 an hour and his eight part-timers $8.50, he says, and he has become an evangelist for the minimum wage increase, trying to persuade fellow small business owners who are skeptical to support it. “I get incredible continuity by paying people fairly. The longer they’re here and the better they’re treated, the more likely they are to take ownership,” he says. “My employees really run my business while I concentrate on logistics and predictions. I have not had a case of internal theft in decades.”

Brian England, who founded $2.2 million British American Auto Care in Columbia, Md., in 1978 and has 20 employees, says he didn’t consider it a burden when minimum wages were increased regularly. “People used that as a time to review wages generally, and everybody went up. Now the people at the bottom are so far behind, they need a chance to catch up,” he says.

But the timing for increasing labor costs is poor right now, particularly when so many small businesses are still struggling to recover, says Molly Brogan, spokeswoman for the National Small Business Association, which opposes the proposed legislation. “We’re particularly wary in a difficult economy. When you’re faced with 10 employees in a low-profit business such as a hardware store, what you’ll have to do is put your money into increasing wages and any new hiring will be suppressed,” she says.

It would certainly make business difficult for Debi Pappas, who co-founded White Glove Services in Orlando in 2010. The company trains and provides butlers and cleaning teams for large estates, vacation homes, and special events and had $250,000 in 2011 revenue. Her 38 employees make from $9 to $15 an hour; she pays $8 an hour during training. “I’m considered a nice employer, and I can attract really great people because I’m paying above the minimum even when they’re not [working] in homes,” she says. To stay above an increased minimum wage, she’d have to boost starting wages, and it’s unlikely she could pass the cost to her customers because she’s already charging them top prices. “Even 50¢ an hour makes a big difference for a small business person. It would probably cost us $1,000 a month, which would hurt cash flow and have a negative impact on our bottom line.”

As for larger economic benefits, they won’t benefit Pappas’s business much, she says: People who hire butlers don’t typically change their spending patterns based on the minimum wage.

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