The Battle Over Minimum Wage: Small Business Consulting in a Time of Debate

EAG, October 16, 2019

The minimum wage debate carries on.

Earlier this year, retail giant Target announced that it will raise its minimum wage of $12 by $1 this summer with the goal of reaching $15 an hour by 2020. Similarly, Bank of America has said that they will be raising their minimum wage to $20 an hour by 2021. Corporate giants Amazon, CVS, Costco and Walmart have also announced that they will be raising their minimum wage for employees.

Each of these announcements has gotten a lot of attention and good press for these companies, as it seems like all their employees are now getting a pay raise.

Despite the fact that it may seem like a windfall for employees, raising the minimum wage can actually be more dangerous for them.

Customers most likely aren’t going to pay more for a product or service from a company simply because the workers there are getting paid more—but this is what would have to happen in order for a business to stay afloat after increasing wages.

If the company didn’t charge more for their product or service after raising employee wages, they would take a huge hit and probably eventually end up closing down. That extra money that goes to the workers’ wages has to be made up somewhere.

A business needs money for many things: research and development, marketing, training for employees, and the manufacturing of their product or execution of their services. If the money that should be going to those things is instead going to employees due to a wage increase, that business is not going to be as effective in serving its customers. It can’t progress. If that business’s profits are entirely re-distributed to employees, it will make that business much less effective—which means no customers and no profit. And without profit, no one gets paid.

The U.S. is a capitalist economy. Any small business consulting agency will tell you that small businesses have the ability to thrive when they provide a good product or service to their customers, and have the proper marketing strategy to bring their audience in and show what they can provide.

However, with minimum wage hikes, businesses—from the smallest to the largest—will have to fire more workers in order to be able to make ends meet, which backfires on the employees. What may seem good isn’t always the truth.

Then there’s the tax issue. Increasing the minimum wage will also raise taxes for businesses, which could mean a blow so big that smaller businesses may be forced to close their doors.

What’s more, a legislated minimum wage diminishes the ability for capitalism to work effectively.

Capitalism is a very strong economic system for producing a large variety and volume of all kinds of products and services. It has controlled our marketplace very well for many, many years—but in order for it to work, there has to be enough customers to purchase what these businesses are selling.

Our consumer power decides what products and services will succeed and which will fail.

That’s where marketing comes in and works with capitalism. Marketing makes people want to buy things—so without marketing, capitalism wouldn’t survive. Capitalism is strong as long as marketers can entice customers to purchase from businesses.

Nobody understands capitalism better than small business owners.

For example, imagine two different family-owned and operated motels within just a couple of miles of each other. Both have glowing reputations, attentive service and clean, attractive accommodations.

But one of the motel owners doesn’t value his employees as much as the other. He pays a lower-than-average wage and, over time, he loses those employees.

The other motel owner is determined to give his employees the quality of life they want and it’s reflected in the fact that many of his staff have been with him for over 20 years—and so have many of his customers.

Competitive market wages, a satisfied workforce, attentive customer service and many other factors make one a winner and one a loser.

Nowhere in this equation does a legislated minimum wage affect the market. However, it does mandate that employers who don’t pay a livable wage will struggle with long-term success due to a rotating door of employees who leave for better pay. It makes a business owner who pays just a nickel over minimum wage look like a hero. That’s wrong, as mentioned before with corporate giants like Target and Bank of America raising their minimum wage.

Minimum wage standards will indeed hurt businesses large and small. For a small business, that can mean complete failure.

The argument for higher minimum wages often comes in the form of advocating higher pay for those who are poor—and there is some truth there. The United States has the highest standard of living in the world, yet in 2017, 39.7 million people were reported below the poverty line in the country.

However, raising the minimum wage doesn’t help solve that problem, it creates new ones.

If we as a society truly want to support a cause that will actually help those below the poverty line to make more money, we should champion free market reforms. Fewer taxes and better regulations will allow businesses to keep doing what they do best—providing goods and services at prices that customers are willing to pay.

If we advocate more opportunity now, more businesses—large and small—will be able to hire more employees. And when those employees become better trained and more experienced, their work will become more valuable and the wage that people are attempting to force by law will naturally come about on its own.

In the meantime, small business consulting agencies can help businesses develop strategies to navigate situations of employee retention and public relations.

 

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