Weighing the Pros and the Cons of a Minimum Wage Increase

Cities, states and large companies are choosing to take part in the call for a minimum wage increase. Where do you fall on the debate?
February 09, 2018

The first minimum wage introduced for employees in 1933 was 33 cents. Since 2009, the federal minimum wage for hourly, non-exempt employees has been $7.25. Nationally, 2.2 million Americans earn at or below the federal minimum wage, according to the Bureau of Labor Statistics. However, according to the National Conference of State Legislatures, dozens of local cities and states have instituted a minimum wage increase based on higher costs to live in those areas since 2014.

For example, New York State has set $13.50 as the lowest compensation this year for companies with 10 or less employees. For businesses with 11 or more employees, the rate is $15.00. (In 2019, the minimum rate for all companies will be $15.) In Illinois, the minimum wage is $8.25, but in Chicago, it is currently $12. 

When the federal, state or city guidelines for minimum wages go up, this obviously increases the employee expense for companies.

Many business owners see this as a direct assault on a profitable bottom line. Others view a higher minimum wage as a benefit to their company because it helps create loyal employees.

Not sure where you land? Let's take a look at the reasoning on both sides.

In Opposition to a Minimum Wage Increase

Some business owners are against a minimum wage increase because it raises costs in their company.

When the federal, state or city guidelines for minimum wages go up, this obviously increases the employee expense for companies.

They believe it places an undue burden to raise the standard of living of employees on their business, believing this is not directly their role. They argue that higher minimum wages result in lower revenue growth and increased unemployment since they may have to lay off people to keep their people expense the same. Some companies have delayed raises for employees already above the minimum wage to offset these rising costs.

As a result, some companies feel incentivized to outsource labor to other countries (or states) where the hourly rate is lower or hire independent contractors instead of full-time employees. Some have shifted investment away from the rising cost of people and put it into more automated delivery methods that do not require future human labor.

Large food service companies have stated that they are forced to raise prices for customers to cover the higher employee costs, which fuels inflation and stunts economic growth. They argue for a lower training minimum wage rate, which they see as a better alternative to people being unemployed.

In Support of a Higher Minimum Wage

Other companies believe that better wages will bring more satisfied and loyal employees since they will be able to better support their families on what they earn from a single job.

They argue that increases in minimum wages has not kept up with inflation. Theoretically, a single parent raising one child has an annual pay of $15,080 a year (that is, 2,080 hours x the minimum wage). That's still below the national poverty level of $16,240

Business owners in support of a minimum wage increase believe that this shortfall then must be made up by welfare subsidies from the government, which will ultimately raise taxes. With employees making higher wages, the state and federal government will also have slightly increase in payroll taxes to provide other services.

These business owners also reason that employees who earn more are also consumers. A minimum wage hike could increase their spending and therefore will provide a general economic stimulus that will benefit their company. 

Large companies have given this reasoning and more when announcing their decisions to increase their minimum wages. Walmart increased its minimum wage to $10 in 2015 and $11 in 2018. The company believes that raising wages (and increasing training) will improve the company's profit over time, especially when there is low unemployment. Other companies like Ikea, Costco, and Facebook have followed this trend.

Does your business support or oppose minimum wage increases and why?

Read more articles on hiring & HR.

Photo: Getty Images

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