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When the minimum wage rises, will small businesses get the downside?

This story appears in the October 2001 issue of Entrepreneur. Subscribe »

If the changing of the Senate guard is an indicator of shifting political winds, entrepreneurs may soon pay employees higher minimum wages. Whether it's $1 over three years, as proposed by some Republicans, or $1.50 over 18 months, as Sen. Edward Kennedy (D-MA) has offered, some version of a national wage increase could pass by the fall.

Many small-business organizations warn that an increase would disproportionately hurt entrepreneurs, who generally have less cash to cover expenses. If they can't get a high enough return for the added investment, the result may be fewer new hires. "My concern is that if you make the minimum wage too high, you'll be excluding some people from the labor market, the folks that don't have experience or skills," says Ron Bird, chief economist for the Employment Policy Foundation, a nonpartisan, nonprofit organization that analyzes workplace trends. Raising minimum wage, he adds, "creates a barrier to entrepreneurship because it adds to what you have to do to justify expanding your business. So it has a negative effect on job creation and the creation of new businesses."

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