While federally or state-mandated increases in the minimum wage can impact employers of all size, they are particularly difficult on small businesses, which not only tend to employ larger percentages of minimum wage workers than larger businesses, but also find it more difficult to absorb the costs of these wage increases, given their often slim profit margins to begin with.
Some of these challenges are highlighted in the latest findings of the most recent Duke University/CFO Magazine Global Business Outlook Survey (www.cfosurvey.org), which were released in September.
The most significant finding, as reported in a September 9 press release from the Fuqua School of Business at Duke University: Chief Financial Officers (CFOs) in the U.S. stated that a hike in the minimum wage from the current federal standard of $7.25 to $10 an hour or more would result in immediate layoffs and significantly curtail future hiring at firms that would be affected by these wage hikes.
Some additional findings:
- In general, firms indicate they could reasonably accommodate a modest hike in the minimum wage to $8.75, but substantial negative consequences would kick in as the minimum wage approaches $10.
- Few affected firms would lay off current employees if the minimum wage is increased to $8.75, but 46 percent would lay off employees at $15.
- Future employment growth would be curtailed at 35 percent of affected firms if the wage were set at $8.75, while two-thirds would curtain future hiring at $15.
- Almost 20 percent of affected firms would reduce employee benefits or increase product prices if the minimum wage were increased to $8.75. Approximately half would do both at $15.
- About 30 percent of affected firms think their ability to attract higher quality workers and reduce turnover would improve if the minimum wage were increased to $10, while about 40 percent feel the same at $15.
"It is important to put these findings in perspective," said John Graham, a finance professor at the Fuqua School of Business and director of the survey. "For one thing, these results primarily apply to employees who currently earn less than $10 per hour, which is about one-fourth of the U.S. workforce, according to the Bureau of Labor Statistics. Among firms employing these low-wage workers, the expected effects of proposed minimum wage hikes are dramatic."
An additional survey finding: An ongoing shift away from labor and towards machinery will accelerate if the minimum wage is increased. In specific, almost half of all companies surveyed indicate they have already or soon will implement labor-saving technology, which will allow them to maintain production with fewer employees. Among these companies, the average reduction in the needed number of employees is approximately 10 percent. "According to CFOs at these firms, the low-wage employees that increases are designed to help will also bear significant employment risk, potentially losing their jobs as firms implement labor-saving technologies," said Graham.
"Labor-saving technologies have dramatic and permanent effects," said Campbell Harvey, another Fuqua School of Business professor, and a founding director of the survey. "Once those jobs are lost, they do not come back. It is very important to note that low-skill jobs are most at risk of being eliminated by labor-saving technologies, with 62 percent of companies with employees earning less than $10 per hour investing in labor-saving techniques."
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