As Connecticut lawmakers consider raising the state minimum wage to $15 an hour, some businesses may be thinking, “How could we possibly make that work?”
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As Connecticut lawmakers consider raising the state minimum wage to $15 an hour, some businesses may be thinking, “How could we possibly make that work?”
It's an understandable reaction for any individual firm. Success is hard, particularly for small businesses that often operate on thin margins with little cushion. But no individual firm is operating in a vacuum, and it's important to review what we know about the minimum wage's impact on the broader economy.
The U.S. has had minimum wages for over 80 years and, after decades of research, the evidence shows that when higher standards are set for how all businesses must operate, individual owners have less to fear than they may think.
Gradually raising the Connecticut minimum wage to $15 may require adjustments, but it would ultimately put the state economy on surer footing, strengthening a consumer base on which more businesses can grow.
Low-wage workers are customers too. In fact, most workers who would get a raise from a $15 minimum wage come from low-income households that tend to quickly spend every dollar they receive just to make ends meet.
That means every extra dollar going into affected workers' paychecks typically goes right back into the local economy in the form of more groceries purchased, a night out for pizza, or a down payment on a car. And for every employee at the locally owned shop getting a raise, there's likely 10 at the national chain whose paychecks will now include dollars that would otherwise have gone to corporate bank accounts in Little Rock or on Wall Street.
With a higher minimum wage, businesses would not only likely see more customers coming in the door, they'd also see fewer employees heading out of it. Higher minimum wages reduce turnover, lowering costs associated with recruiting, hiring and training new staff. As workers stay on the job longer, they develop better skills and provide better customer service. Higher wages are associated with lower absenteeism and higher productivity. An employee working two jobs might now need only one, and she can focus on doing that job well.
It's for these reasons — and the fact that low-wage labor is only one portion of total operating costs — that businesses can typically absorb minimum-wage hikes with relatively small price increases. Studies have found that in industries with large shares of affected workers, minimum-wage hikes typically raise prices by less than 1 percent for every 10 percent change in the minimum wage. And, in most cases, when a business does face higher labor costs from a higher minimum wage, so do all its competitors. Thus, if a firm needs to adjust its pricing, it can typically do so without facing any competitive disadvantage.
Some businesses may need to adjust how they operate — yet, contrary to opponents' warnings of economic ruin and massive job losses, states and cities throughout the U.S. have raised their minimum wages hundreds of times and the sky has never fallen. Rather, the bulk of research over the past two decades has found that minimum-wage hikes have lifted pay with little impact on employment.
In fact, as economists have looked beyond the narrow question of employment impacts, they have found that the benefits of higher minimum wages far outweigh any potential costs. Research shows that raising the minimum wage lifts family incomes, reduces poverty, and spurs faster income growth. Higher minimum wages are associated with better public health outcomes, less need for taxpayer-funded public assistance, and even lower rates of recidivism.
With New York and Massachusetts already on their way to $15, Connecticut businesses may find themselves increasingly struggling to attract and retain staff. The Economic Policy Institute estimates that hundreds of thousands of Connecticut workers would receive over $1 billion in added pay if the minimum is raised. Both sides may soon be wondering, “Why are we waiting?”
David Cooper is a senior analyst at the Economic Policy Institute, a progressive think tank in Washington, D.C.
