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How Raising the Minimum Wage Affects Small Business & Retail Employment

As the cost of living continues to increase on a yearly basis, so does the minimum wage. Minimum wages are dependant upon states; each state gets to set the minimum wage while remaining within the federal standards. Some states choose to raise the minimum wage in order to reduce the amount of poverty, but does it really have that effect?

Studies have shown that raising the minimum wage actually increases poverty since the amount of small business & retail employment decreases. Since most small businesses, including start-ups, don’t have large amounts of capital to work with, they normally have to compensate with the increase by decreasing the amount of entry level employees that they can hire.

While a small business loan can help resolve the issue on a temporary basis, increase the minimum wage really does end up affect the small business employment rate. The study has shown that a 10 percent increase in the minimum wage causes a 0.8% – 1.2% decrease in small business and retail employment. What this causes is a higher unemployment rate.

The main people affected are those who work entry level jobs. Since higher level jobs don’t really get affected by a minimum wage increase, their jobs normally remain safe, but for entry level workers who get paid the minimum wage, this could mean the small business ending the need for their services.

This is often seen in retail stores, especially when teenagers with no experience are hired. Most teenagers work for the minimum wage, causing fewer employment opportunities for teens. While some minimum wage increase advocates protest that increasing the minimum salary that one can make helps decrease poverty, it’s important to consider that more people will lose their jobs.

Other alternatives are available and should be considered by the government rather than continuously raising the minimum wage. For instance, creating a tax credit for workers who get paid the minimum wage would allow them to get extra money on a yearly basis without affecting the employment rate.

If you’re interested in a Small business loan contact FAM today!