Counterintuitive: Raising Minimum Wage Will Be Great for Business

By Charles H. Green

Entrepreneur.com reports that fast-food workers in about 100 cities have been staging wage strikes, leaving many fast food operators – particularly franchisees – caught between a rock and a hard place.

Protesters are calling for $15 an hour — a huge increase from the current federal minimum wage of $7.25, or a full-Entrepreneurtime salary of about $15,000 a year. These strikes follow on the heels of earlier protests that occurred last summer.

While mega-chains have been painted as multi-million dollar villains in these events, it’s usually individual franchisees, often struggling with slim profit margins, who are forced to make the hard decisions on employee wages

The usual chorus of objections has been underway consistently since this movement began shortly after the “Occupy Wall Street” protests. “Raising the minimum wage will only hurt those it is intending to help,” says Matthew Haller, vice president of public affairs at the International Franchise Association, an industry group.

But hasn’t that line of reasoning always been used when pressure was raised to increase minimum wages? Some of us can remember when the same arguments were used to fight raising the minimum wage to $3.35 per hour in 1981 or to $5.15 in 1997. As I recall, the national economy wasn’t thrown into recession at either date, nor millions of short order cooks tossed onto the streets.

Conventional wisdom would say that small business owners, who often operate with small budgets and plenty of fixed costs, will be most vulnerable to a mandated minimum wage increase. The presumed effect is that such a change would immediately cut into their profits and threaten their business.

But thinking more broadly around that argument, wouldn’t increasing the disposable income of millions of workers provide new business revenues for these same business owners? Too many business owners seem to buy into the fear that “higher wages will result in higher prices for customers.” So what?

It’s not like a $15 minimum would mean a $4 happy meals. An across the board wage hike would mean all businesses would have an equal cost increase, so any price adjustments would be relatively equal. If price hikes were required, they would be measured in pennies not nickels, and as such are rarely noticed by customers.

If the IFA is truly concerned about those that higher wages are “intending to help,” they might encourage their membership to absorb some of those wages through lower franchise royalties could help. Such a move would give franchisees more flexibility to meet the higher wages and focus on growing revenues – lift all boats so to speak.

If higher wages meant that the lowest paid wages had more disposable income, wouldn’t that result in a direct benefit to small business owners. Those extra wages would most likely be used for higher consumption to greater degree than increasing savings or personal debt reduction. In other words, it would raise revenues for a long list of retail businesses.

Of most socio-economic demographics categories, who eats more fast food? Lower income earners. Doubling minimum wages might be just the right stimulus to finally awaken a moribund economy from a six year winter’s nap.

Read more at Entreprenuer.com.

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