Survey: Minimum Wage Hike would Lead to Hiring Curb, Business Closures

Businesses surveyed report price hikes, hiring freeze

Senate Minimum Wage
April 14, 2014

A new survey found that President Barack Obama’s minimum wage hike would shutter 3 percent of small businesses and force 30 percent to curb hiring.

The Lucas Group, a national executive search firm, polled 400 small- and mid-sized businesses on the effects that the $10.10 wage hike would have on companies. It found that many small and mid-sized companies, especially those in the service sector, would be forced to hike prices, fire employees, or eliminate new hiring altogether.

"Economic factors that may benefit the lowest wage earners as a whole could, in practice, harm certain subsets of that same group," said Scott Smith, Chief Marketing Officer of Lucas Group. "We found that SMBs within the consumer services industry were more likely to express possible negative consequences to a $10.10 minimum wage. They were more likely to reduce current workforces and/or raise prices, than were businesses in other industries."

The Lucas poll mirrors the vast majority of economic studies that found that wage hikes undermine hiring. The Obama administration has repeatedly insisted that the 40 percent wage increase would "have no negative impact" on job growth.

"Our view is that zero is a perfectly reasonable estimate of the impact of raising the minimum wage on employment," White House Council of Economic Advisers chairman Jason Furman told reporters in February.

A number of nonpartisan studies dispute those claims. A Wall Street Journal survey of 1,200 businesses found that nearly 40 percent would decrease hiring in the event of the massive wage hike. The nonpartisan Congressional Budget Office found that Obama’s proposal could eliminate as many as 1 million jobs, while driving up the deficit by $5 billion.

Michael Saltsman, research director at the Employment Policies Institute, said that the administration’s claims that wage hikes won’t hurt hiring are as truthful as Obama’s "if you like your [insurance] plan, you can keep your plan" rhetoric during the Obamacare debate.

"The evidence that a $10.10 minimum wage will cause job loss continues to pile up," he said. "Americans can take the president at his word that a higher minimum wage won’t hurt jobs—or they can listen to the nonpartisan Congressional Budget Office and the expertise of actual business owners who will be affected by the law."

The Lucas survey also found that rising healthcare costs due to Obamacare remain the top concern for entrepreneurs.

Obama has unilaterally delayed the employer mandate that requires companies to provide employees with health insurance, but the law’s regulations, such as mandatory coverage of birth control, have gone into effect. A Monday CBO report estimated that companies will pay nearly $140 billion in healthcare penalties over the next ten years.

"Wages are one piece of what has become a complicated budgeting process for the American SMB, with healthcare costs, competitive pricing, technological innovation, and regional factors mixing together to create a delicate balancing act for many companies," Smith said.

The Lucas group, however, said that the hike would complicate that balancing act, especially at the local level, reflecting the fact that cost of living plays a role in wage policies. The current $7.25 minimum wage, for example, may not go very far in Manhattan, but Mississippi is another story.

"A rise in the federal minimum wage appears to have multifaceted consequences on various SMBs across the country and may demonstrate an unintended butterfly effect in some locals as well as certain industry sectors," Smith said.