Entrepreneurs Are Forgotten in the Minimum Wage Debate
As Seattle pushes forward with its plans to raise its minimum wage to $15 per hour and the debate over the minimum wage continues on at the Federal level, there is one important group that seems to be left out in the cold -- that is small businesses and entrepreneurs.
For the record, I am opposed to any increases in the minimum wage overall for a slew of reasons. I believe that workers should be paid as much or as little as they are worth. I believe that employees and employers should be able to make an agreement on wages and other employment issues without intervention. I also believe that raising the minimum wage is one of those ideas that comes from a good place but with unintended consequences and that will adversely impact the exact people that it's purporting to help and lead to no greater spending power and fewer jobs for those with the lowest skills.
At the top of my list, I am also very concerned about the effect of such change on entrepreneurs and small businesses.
Some people are generous when it comes to spending other people’s money or telling others what they should do with it. Entrepreneurs risk their capital to start new businesses every day. The entire risk resides with the small-business owners and nobody is guaranteeing them a wage or any outcome.
As I discuss in my book, "The Entrepreneur Equation," most small businesses aren't financial home runs. The majority earn less than $100,000 in revenue a year, aren't profitable over their lifetimes and constantly struggle. Many business owners work more hours for the same or less pay than they did when they had a job. Many lose money for the first few years while the business is getting settled. The greater majority fail within in five years.
So, why should small-business owners risk their money and be forced to pay someone else more than they are even able to reap themselves? That concept is nonsensical, and against the basic tenets of free market capitalism and American opportunity.
Part of the problem is that the headlines rarely focus on small businesses and entrepreneurs. While there are around 28 million small businesses in this country, with approximately 6 million that have employees, the headlines always center around the slightly more than 18,000 “large” U.S. corporations. We hear about Wal-Mart when more than 50 percent of the working population is employed by small businesses. So, while I disagree with the premise of minimum wage increases, I challenge those who want to penalize a handful of big companies with a change that will affect millions of small businesses who would have to abide by that same changed legislation as well.
Instead of talking about entrepreneurs and small businesses -- the backbone of our economy -- minimum wage discussions center around corporate greed to the cost of living. Proponents of legislated wage intervention cite the challenges of raising a family while working at minimum wage level during a 40-hour work week. For better or worse, most entrepreneurs work at least 50 percent more (some even 100 percent) than 40 hours to run their businesses and create jobs.
Shouldn’t those benchmarks at least be equal to have any meaningful conversation? And speaking of the concern about the plight of workers -- those workers, mind you, have of their own free will agreed to trade their skill level and time for a certain wage.
The entire concept of imposing a minimum is arbitrary and doesn’t take into any circumstances. Any minimum-wage increase would affect all entrepreneurs, whether you are starting a business right out of college or a stay-at home mom looking for some incremental income. Even if someone wants to help you grow your business, you can't hire that person on an hourly basis unless you pay the minimum wage, regardless of your -- or his or her -- circumstances.
Contending with a bigger minimum-wage creates many challenges for small business. It may mean that the business has to wait longer to hire a new employee, making it more difficult to grow and riskier to start up to begin with. It can also lead to a small-business owner hiring fewer employees. Raising the minimum wage typically means that those earning above the minimum wage want a bump, too, as they note the value of their skills above the minimum-wage earner. As these costs accumulate, the small-business owner will bear the cost differential and take home less pay. Ironically, when adding up his or her time, it may mean that for years that an entrepreneur takes home an amount less than the minimum wage on an hourly basis.
While raising the minimum wage may not stop a large company from opening a business in Seattle or another high minimum wage city, it sure will create pause and a bigger challenge for a food truck operator, small retailer or other entrepreneurial startup with limited capital or a smaller revenue business model.
For those who are concerned about minimum wages, are they going to also guarantee the small-business owner's income? We certainly shouldn't -- just as we shouldn't for anyone who works for a small business or for any business, for that matter. Appropriate compensation is what the market sorts out, if allowed to operate freely.
While Seattle is phasing in the minimum wage increase for small business over a longer period of time, it still ultimately ends up in the same place. Plus, mom and pop franchisees of large franchise chains aren’t even being considered small businesses at all.
We cannot forget about the impact that small business has on our economy. If we want to encourage innovation, growth, jobs and overall prosperity, we have to take the needs of small-business owners seriously. And this means that when we look to policies, we have to remember the scope of small business in the U.S. and what those policies will mean to the entrepreneurs behind them.
Small business may not grab the headlines, but entrepreneurs do bear the brunt of business legislation.