Both sides of the minimum wage debate deserve recognition
It may only be a matter of time before the minimum wage in the United States increases to USD $15 per hour. President Joe Biden has gone on record saying he supports the USD $15 movement, with the idea being that this wage would bring most people working 40 hours per week above the poverty line.
There are good intentions with this move but what about the unintended consequences?
The idea of everyone making a living wage certainly sounds reasonable but opponents suggest it would increase inflation and make it more challenging for smaller businesses to hire skilled workers because their wages would rise, too.
There are two sides to this story and it’s worth examining thoroughly to determine the best course of action for the country to take. Here’s a look at some questions many business owners and citizens have about the minimum wage potentially increasing to USD $15 per hour.
- We could see a $15 minimum wage become a reality in the future.
- There are questions on how it could hurt small businesses.
- DOXA provides offshore talent that can alleviate some of those concerns.
Will a higher minimum wage drive inflation?
One of the most common arguments against the idea of a higher minimum wage is that it would drive inflation. The idea is that increased wages put more of a burden on corporations trying to maintain their profits, which they will pass onto consumers through higher-priced goods and services.
These higher prices, in turn, reduce the value of the dollar and even higher wages will become necessary to keep up with the increased cost of consumer goods.
On the other hand, there’s little to no evidence supporting the idea of a higher minimum wage driving inflation because employee wages are only a small part of an organization’s operating expenses. Moreover, many companies might go with a smaller, more efficient workforce, eliminating the impacts of the higher wages.
History suggests that a higher minimum wage does not lead to inflation, although it could increase operating costs for small businesses and reduce their profit margins.
Could a higher minimum wage boost the economy?
From an economic standpoint, there are some potential positives associated with a higher minimum wage.
First, the Center for Economic and Policy Research suggests that paying workers more money won’t hurt the number of jobs available, even in the service and retail industries.
Second, a paper published by the Economic Policy Institute reports that even a modest USD $2.55 per hour increase in the minimum wage would put an additional $40 billion in the pockets of the country’s lowest earners. Since low-wage workers are most likely to spend the money they’re making, much of this income would go directly back into the economy rather than sitting in savings accounts or investments.
Signs point to an overall economic benefit when paying the country’s low-wage earners a little bit more because this money will make its way back into the economy very quickly.
Is an increased minimum wage good for businesses?
It’s a mixed bag when looking at how a higher minimum wage would impact businesses.
In some cases, it could be a good thing because it would create greater worker productivity. Employees who make more money feel valued within an organization, leading to greater morale and work ethic.
The Center for American Progress reports that paying employees higher wages keeps them on the job for longer. In addition, having long-term employees can save businesses money, as it’s estimated that it takes about 16% of a low-wage earner’s annual salary to train a new worker when someone leaves the organization.
However, it’s worth noting that not every business can afford these higher wages. In fact, former McDonald’s executive Ed Rensi believes that a higher minimum wage would lead to the closure of 15-20% of small businesses that can’t keep up with these costs.
It remains to be seen if his estimate holds true but it’s certainly worth keeping an eye on for small and medium-sized businesses in the country.
The benefit of offshoring
Despite a higher minimum wage potentially helping some businesses improve productivity and decrease employee turnover, it could also lead to higher costs when attracting skilled workers.
With a USD $15 minimum wage, it stands to reason that experienced accountants, lawyers, assistants, web developers, and software engineers would want higher wages, too, making it challenging for smaller companies to compete. The result is some small businesses being priced out of the market for these employees because their wages could reach levels that are impossible for these firms to match.
Fortunately, offshoring is an option for small and medium-sized businesses that find themselves priced out of the market for employees with specific skill sets.
DOXA helps small and medium-sized businesses construct a team of global talent, making it possible for them to scale up without taking on the costs of full-time employees. Our services could become increasingly valuable because the USD $15 minimum wage doesn’t apply to these employees. Contact DOXA to inquire about a free consultation and begin speaking with candidates today.