skip to main content
Minimum Wage Has No Impact on Small Business

Minimum Wage Has No Impact on Small Business

by Dennis Jacobe

PRINCETON, NJ -- The federal minimum wage was last increased nearly a decade ago and remains at its 1997 level of $5.15 an hour. Recently, however, Arkansas became the 20th state to raise its own state minimum wage above the federal minimum wage. Given the relatively stagnant wages of low-income workers during recent years and the surging gas prices of recent weeks, it will not be surprising if pressure builds for more states -- and even the federal government -- to reconsider current minimum wage laws.

Surprisingly, a new Wells Fargo-Gallup Small Business Index poll, conducted March 1-15, 2006, finds significant support among small-business owners for increasing the minimum wage.

Not Hiring Minimum Wage Workers

Eight in 10 small-business owners say they hire their new employees at a wage level that exceeds the current minimum wage. Of the 14% of small businesses who do hire employees at the minimum wage, two in three say they do not expect to keep their new employees at that wage for more than a year. One in three of these new minimum wage employees are also hired on only a temporary basis.

No Minimum Wage Impact on Small Business

Eighty-six percent of small-business owners say the minimum wage has no effect on their businesses. For that matter, nearly as many small-business owners say the minimum wage has a positive effect on their business (5%) as say it has a negative effect (8%). In fact, three in four small-business owners say a 10% increase in the minimum wage would have no effect on their companies.

Support for Increasing the Minimum Wage

Forty-six percent of small-business owners say they believe the minimum wage should be increased while only 34% believe it should remain where it is now. Only 2% believe the minimum wage should be reduced although 14% think it should be eliminated altogether.

Non-Issue for Small-Business Owners

Not long ago, one could reasonably assume that the "minimum wage" was an issue of major importance to America's small-business owners. The new Wells Fargo-Gallup poll suggests this is no longer the case. In part, this may be due to the way average wages have increased while the minimum wage has remained fixed over the past decade. The United States' wage levels have simply made the minimum wage largely irrelevant to the labor market.

Illegal immigration and the outsourcing of jobs to other nations may also be playing a role. Illegal immigration undercuts minimum wage laws since employers do not have to pay "illegals" the minimum wage. Job outsourcing undercuts minimum wage laws by moving work to other countries at lower wages.

More importantly, all of these factors have probably combined with improved technology and increased productivity to bring about significant change in the employment needs of this nation's small businesses. It has become increasingly difficult -- if not impossible -- for today's small businesses to rely on unskilled, minimum-wage labor. Instead, they are looking for highly skilled workers they can pay a reasonable return for their productivity. In fact, past Small Business Index surveys have shown that finding highly skilled workers is one of the major challenges facing today's small-business owners.

In summary, it may be that changes in the U.S. economy have significantly reduced the costs as well as the benefits associated with increasing the minimum wage. At least in the case of U.S. small businesses, a reasonable increase in the minimum wage is unlikely to have a significant impact.

Survey Methods

Results for the Wells Fargo-Gallup Small Business Index poll are based on telephone interviews with 603 small-business owners, conducted March 1-15, 2006. For results based on the total sample of investors, one can say with 95% confidence that the margin of sampling error is ±4 percentage points.

Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A
+1 202.715.3030