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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 shiftingpolitical winds, entrepreneurs may soon pay employees higherminimum wages. Whether it's $1 over three years, as proposed bysome Republicans, or $1.50 over 18 months, as Sen. Edward Kennedy(D-MA) has offered, some version of a national wage increase couldpass by the fall.

Many small-business organizations warn that an increase woulddisproportionately hurt entrepreneurs, who generally have less cashto cover expenses. If they can't get a high enough return forthe added investment, the result may be fewer new hires. "Myconcern is that if you make the minimum wage too high, you'llbe excluding some people from the labor market, the folks thatdon't have experience or skills," says Ron Bird, chiefeconomist for the Employment Policy Foundation, a nonpartisan,nonprofit organization that analyzes workplace trends. Raisingminimum wage, he adds, "creates a barrier to entrepreneurshipbecause it adds to what you have to do to justify expanding yourbusiness. So it has a negative effect on job creation and thecreation of new businesses."

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