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For several years now, one of the main topics of discussion here in the U.S. has been the possibility of a fifteen dollar minimum wage.  Recently, a few states, including California, New York, and Washington, have started raising their minimum wage.  As a result, this has caused business owners to ask many questions.  The main question being, what is that going to do to the economy with regard to the effect on small businesses?

 

Looking at it superficially, a $15 minimum wage is beneficial, especially for the consumer.  Employed individuals comprise the biggest portion of the economy’s pool of consumers and when they earn more, they have extra money to spend on their needs.  Almost immediately after a raise, you will notice people start buying better goods and services.

 

One vital aspect about small businesses is that they usually don’t have very many options when it comes to financing.  Therefore, a drastic increase in the minimum wage is a severe strain on their already-stressed financial status.  Often, the only way out for most of them is to transfer the increase in labor costs to the buyer.  So, even if the consumer had more to spend, the buying power of their money gradually plummets.

Frequently, when a small company is obliged to pay employees a higher wage, it forces them to lay off a few members of their staff.  For instance, if some employees are assigned to working on small business websites, they may lay off half of the team and retain the other half to handle all the tasks.

 

A minimum wage of $15 would create the ideal conditions for a gradual shift to a gig economy.  Rather than hiring full-time workers, firms hire freelancers and work with contractors so they receive more work without transferring the burden to the consumer.  Technology is also going to play a key role as businesses will use better software to manage small business websites in order to boost profits.