Scope of Topic: Is a $15 minimum wage in large American cities fair to the affected businesses?
On Nov 2014, San Francisco has voted to raise the minimum wage to $15 over a course of the next three years. This article intends to analyze the impact of the decision on businesses.
The ripple effects of the wage hike are felt not just businesses that employ blue-collar workforce but also by larger corporations and the US economy as a whole. The wage hike is primarily aimed at providing economic stimulus to blue-collar workforce, who must live off their hourly wage.
The article will be segmented into two parts â€“ Fair and Unfair. Reasons that highlight both standpoints will be listed out and discussed in each segment.
Fair to US Businesses
Reduces employment and training costs. ...view middle of the document...
$50 B in spending. This increased spending can be captured by businesses in general.
GDP grows by $22B , which leads to better business. Research by EPI, a research group funded partly by labor unions, shows that increasing minimum wage boosts the economy. A better economy translates to higher opportunities for businesses.
Unfair to US Businesses
Lower profit margins at small and medium businesses (SMB). SMB drives 70% of the US economy. Mom-and-pop stores have very thin operating margins. Increasing the minimum wage can eat into their profits . Labor-intensive sectors, such as restaurants, cannot decrease employee numbers or increase prices to maintain profits. This could ultimately lead to driving SMBâ€™s, without any competitive edge, out of business.
Increases Outsourcing and competition. Duke University Finance Professor Campbell Harvey surveyed 400 US CFOâ€™s on the implications of minimum-wage increase. 70% of the US CFOâ€™s said that they will increase outsourcing due to an increase in minimum wage.
Leads to Inflation. Sara Lemos, an economist, looked at 20 papers on the subject and found that a 10% rise in minimum wage will cause 4% increase in food prices and a 0.4% increases in prices overall . Economists call this effect as cost-push inflation. The side effect would be that businesses lose competitiveness as fewer consumers can afford the rise in prices .
Over 650 economists, including five Nobel Prize winners and six past presidents, signed a declaration stating that wage hike improves the lives of low-income employees without the adverse effects on economy or businesses . However, it is also widely acknowledged that SMBâ€™s do not have the cash flows to withstand the short-term impacts. A proposed solution to mitigate any negative impacts is that the increases in minimum wage should be incremental.