Why Small Businesses are Struggling to Survive with a Minimum Wage of $26,000 per Employee
Small businesses are the backbone of any thriving economy, employing millions of people around the world. However, with the rise of minimum wages, a growing number of small businesses are finding it difficult to keep their heads above water.
The U.S. Department of Labor defines the minimum wage as “the lowest hourly wage that employers can legally pay their workers.” In the United States, the federal minimum wage is set at $7.25 per hour, but some states have set minimum wages above this amount.
While raising the minimum wage may seem like a positive step towards reducing poverty, the reality is that it can have unintended consequences that can negatively impact small businesses. One of the most significant effects of raising the minimum wage is that it can increase labor costs for businesses that rely on low-wage workers.
Increased Labor Costs
For small businesses, labor costs are often the largest expense. Raising the minimum wage can increase these costs significantly, making it difficult for businesses to remain profitable. In addition, small businesses often lack the resources to absorb these additional costs, which can lead to layoffs and reduced work hours.
Small businesses also face stiffer competition from larger companies that have deeper pockets and can afford to pay their workers higher wages. This can make it difficult for small businesses to attract and retain employees, particularly those with valuable skills and experience.
Decreased Hiring
Another challenge faced by small businesses struggling with minimum wage increases is decreased hiring. When wages are raised, small businesses may be forced to reduce the number of workers they hire in order to maintain profitability. This can lead to a reduction in job opportunities, particularly for marginalized groups, who are often the most affected by minimum wage increases.
Increased Automation
In addition, small businesses may turn to automation in order to reduce labor costs. This can result in job loss for low-wage workers, who may find it difficult to find employment elsewhere. It can also result in a higher upfront cost for small businesses, making it difficult for them to compete with larger companies.
Conclusion
While the intention of raising the minimum wage is to boost income for low-wage workers, it can have unintended consequences for small businesses. Increased labor costs, decreased hiring, and increased automation can all negatively impact small businesses trying to survive on a minimum wage of $26,000 per employee. As such, policymakers and business leaders need to find innovative ways to support small businesses while also addressing income inequality.
