Raising the minimum wage is one of the many policy ideas peppered with tradeoffs, but one of the few that have such a direct impact on businesses and employees alike.
Lawmakers in Idaho and Montana have introduced legislation intended to raise the minimum wage. The legislation in Idaho has been introduced by Rep. Steve Berch. House Bill 48 would repeal a prohibition on local governments setting their own minimum wage.
Meantime in Montana, House Bill 201 introduced by Rep. Kelly Kortum would hike the minimum wage to $11.39 per hour plus tips.
The minimum wage in Montana currently sits at $9.95 per hour, while Idaho's minimum wage is the federal minimum of $7.25 per hour.
Currently, there are only 54 cities or counties around the nation that have their own minimum wages that vary from their state minimum wage. The patchwork of different wages makes it difficult in some states for small business owners to properly plan for and track employee hours, especially if employees work at multiple locations.
The broader issue, however, is the financial impact on small businesses and the workers themselves. It is true that some workers will see paychecks rise as a result of minimum wage increases, but many more end up seeing wages fall as hours are reduced. We know this from experience, and projections.
A great Congressional Budget Office tool gives users the opportunity to see the impact of raising the minimum wage. It shows some positive impacts, including a decrease in the number of people living in poverty. But it also shows negative aspects – specifically, the change in employment and the overall change in real family income. Under a scenario where the minimum wage would increase to $15 per hour, both see dramatic declines.
Research from the Harvard Business Review had similar findings. It concluded that “for every $1 increase in the minimum wage, we found that the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decreased by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week – which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%. This decrease in the average number of hours worked not only reduced total wages, but also impacted eligibility for benefits."
The University of Washington conducted a review of Seattle's increase of the minimum wage to $15, phased in over several years. Researchers wrote "those earning less than $19 an hour saw wages rise by 3.4% once the city’s minimum wage was $13, while experiencing a 7.0% decrease in hours worked."
In other words, the hike was costing jobs. In fact, the research showed there would be 5,000 more jobs in Seattle if the hike had not been adopted.
While some businesses might be able to afford the hit of a minimum wage hike, others will not. Restaurants, retail and hospitality, for example, run on very low profit margins. The impact there is likely to be much more severe.
In the end, some workers will benefit from a hike in the minimum wage, but others will see fewer hours and lower earnings. It's a tradeoff – not necessarily the rosy picture some activists and lawmakers project.