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How will minimum wage increases affect small businesses?

Yesterday, Jeanne Sahadi of CNNMoney reported on President Obama’s signed executive order to increase the federal minimum wage. The current order affects all businesses with contractors and subcontractors that provide construction, services and concessions to the US federal government.

President Obama gathers with White House staff to sign executive order to increase the federal minimum wage.
Photo by Alex Wong/Getty Images

As of 2015, the minimum wage for these companies will increase from $7.25 to $10.10 per hour. The President’s hope is that the new minimum wage order of 2014 will encourage Congress to make the same increase across the board for all workers in the US.

So, what group of workers are among those affected by this executive order? According to White House reports, these are just some of the types of workers who will benefit:

  • Workers who maintain military base grounds
  • Food servers who service US troops
  • Nursing assistants who provide care to veterans
  • National parks concession workers

Effects of Increasing Minimum Wage across the BoardCons of Higher Wages

According to critics of new minimum wage laws, there will be some ramifications of paying a higher minimum wage across the board. Some of the cons include:

  • Employers may begin hiring fewer employees
  • Workers’ hours may get reduced
  • Established small businesses may suffer layoffs
  • Businesses may be forced to increase prices

Pros of Higher Minimum Wage

There are some fans of the proposed new minimum wage law who believe it will have positive effects on small businesses and the national economy, as a whole. They believe that paying higher wages will help to achieve income equality for some US workers, and bring such benefits as:

  • Reduction in worker turnovers with less workers seeking higher-paying jobs
  • More local spending by workers, helping local economies thrive
  • Employers end up with happier, more dedicated employees
  • Happier workers leads to better customer service, increasing sales
  • Employing more dedicated employees helps increase productivity

According to one Las Vegas small business owner, higher wages will lead to a more stable staff of happy workers. This, in turn, will lead to increased productivity and better customer service.

How Has Higher Wages Helped Other Business?

There are US companies who have always paid higher wages. Not only did they make this the cornerstone of their successful operations, they were able to grow much larger because of it.

Costco hourly workers make $20.89 per-hour on average. In contrast, hourly employees at McDonald’s average about $7.73 to $12.81 per hour, depending on which report you refer to for reference.

In-N-Out, a successful California-based restaurant chain opened the same year as McDonald’s, in 1948. At the time, 65 cents was the minimum wage. However, Harry Snyder, In-N-Out’s founder, chose to pay $1 per hour, plus each worker got one free hamburger per shift.

Today, the starting wage at In-N-Out is now $10.50 per hour. It now has nearly 300 stores located in five US states. Research firm, Technomic Inc., reports that the “small business” ranks second in per-location revenue, right behind McDonald’s.

Minimum Wage and Nevada Small Businesses

The current minimum wage in Nevada is $8.25 per hour. That’s exactly $1 higher than the $7.25 per hour federal minimum wage. However, for Nevada businesses who provide medical coverage to their workers, they minimum wage is $7.25 hourly. Check minimum wage in your state.

A MyNews4 report, Minimum wage effect on local business, profiles Paul Martin, owner of Bibo Coffee Company. The small business owner has three local Reno locations.

Martin seems to have already crunched the numbers on how an increase would affect his Nevada businesses. Paying his employees $10.10 per hour would cause him to have to increase coffee prices by very little. According to his figures, such an increase would raise his prices by only about $.05 per coffee, on average.

He feels confident that the price increase won’t cause a loss in business because coffee is a “guilty pleasure” that many people simply can’t do without. Wage increases will afford consumers the opportunities to recycle more local dollars. So, long-term, Martin believes this will help to increase his customer base.

How do you feel about the proposed minimum wage increases? Will it have a negative or positive affect on the local Nevada economy and small businesses? Leave your comments below.

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