On April 30, 2014, the U.S. Senate failed to pass a measure (S.2223) that would have increased the federal minimum wage from $7.25 to $10.10 per hour by 2016, at which time it would be permanently indexed to inflation.

One of the most vocal organizations opposing the bill was the National Federation of Independent Business (NFIB), the nation's leading small business advocacy organization.

In her testimony to Congress on April 29, Susan Eckerly, senior vice president, public policy, for the NFIB, noted, "Like most government mandates on business, raising the minimum wage will have a deep and disproportionate impact on the small business sector, because small businesses are the least able to absorb such dramatic increases in their labor costs. The small business sector has historically created two-thirds of net new private jobs in the U.S. economy, but has failed to recover in recent years because of a series of policies that increase the burden on small business owners - increases in healthcare costs, higher taxes, more costly regulations, and now the minimum wage increase proposal."

When debates occur over minimum wage, one of the first figures mentioned is the percentage of workers who currently earn the minimum wage. Those who support minimum wage increases point out that, since workers currently making minimum wage represent such a small percentage of the total workforce, such increases won't have much financial impact on employers - except, of course, those for whom the majority of the workforce is composed of minimum wage workers, such as restaurant, hospitality and retail.

The percentage of workers making minimum wage is, indeed, small. According to the Bureau of Labor Statistics, only 1.532 million hourly workers earned the federal minimum wage of $7.25 per hour last year, and nearly 1.8 million more earned less than that because of falling under certain exceptions (tipped employees, full-time students, certain disabled workers, etc.).

"That group represents 4.3 percent of the nation's 75.9 million hourly-paid workers and 2.6 percent of all wage and salary workers," said Drew DeSilver, a senior writer at the Pew Research Center. "In 1979, when the BLS began regularly studying minimum wage workers, they represented 13.4 percent of hourly workers and 7.9 percent of all wage and salary workers."

So, why are so many businesses that don't hire a large percentage of minimum wage workers opposed to minimum wage increases? It's because of the "ripple effect."

That is, increasing the minimum wage forces employers to raise wages for those who, at very least, are making just above minimum wage. As noted in a report titled, "The 'Ripple Effect' of a Minimum Wage Increase on American Workers," published by The Hamilton Project, "Although relatively few workers report wages exactly equal to or below the minimum wage, a much larger share of workers in the United States earns wages near the minimum wage." The report continued, "Considering that near-minimum-wage workers would also be affected (by an increase in the minimum wage), we find that an increase could raise the wages of up to 35 million workers - that's 29.4 percent of the workforce." That is, according to the report, "An increase in the minimum wage tends to have a 'ripple effect' on other workers earning wages near that threshold. This ripple effect occurs when a raise in the minimum wage increases the wage received by workers earning slightly above the minimum wage."

However, forced wage increases rarely stop at that level. In fact, such increases may end up being required for all employees in a company. "When there is a minimum wage increase, some small business owners will raise the pay for most, if not all, hourly workers in order to preserve their wage structure and retain quality employees," reported an article ("Minimum wage hike could mean a raise for all") published by CNN Money in January 2014.

For example, if the minimum wage is $7.25 an hour and is then raised to $10.10 an hour (as was proposed by President Obama), it doesn't only affect those employees currently making $7.25 an hour. Logic dictates that employees currently earning $10 an hour are going to demand $12.50 an hour, those making $12.50 are going to demand $15, those making $15 are going to demand $20, and so on, all the way up the ladder. In fact, many manufacturing executives have noted that, as the wages of their higher-paid manufacturing employees have continued to rise, they have been forced to close their domestic factories and send the work overseas, where wages are lower. And why do domestic manufacturing employees continue to demand pay increases? Because, as just noted, when workers below them continue to receive pay increases (as originally triggered by minimum wage increases), common sense dictates that the higher-paid workers will also insist on pay increases.

In sum, any time the minimum wage increases, most businesses are forced to raise everyone's pay, and doing so is particularly difficult on small businesses. "The minimum wage directly affects small businesses, because a large amount of their earnings go directly to pay for operating expenses, such as equipment, supplies, property costs, inventory, and employee wages and benefits," said NFIB's Eckerly in her Congressional testimony. "Increasing labor costs does not incentivize growth or hiring - they make it nearly impossible."

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The hidden danger of minimum wage increases on small businesses

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