It’s been speculated that the increase in the minimum wage through the years has negatively impacted small businesses because of the difficulties of having to balance normal business expenses plus a higher pay rate for their employees, causing them to cut jobs.
But a new study conducted by Belgian economist Jesse Wursten and co-authored by UC Berkeley economist Michael Reich has found that small businesses can benefit when governments raise minimum pay. Thanks to this study, it’s safe to say that these speculations are not true.
The study shows that a higher wage makes it easier to hire new employees and even easier for small businesses to maintain their staff. “It kills job vacancies, not jobs. The higher wage makes it easier to recruit workers and retain them. Turnover rates go down. Other research shows that those workers are likely to be a little more productive, as well,” said Reich. Wursten and Reich also focus their study on teen workers, because of the misconception that their demographic would be most negatively impacted since they would have to deal with job loss when the minimum wage was raised.
What the authors found was that from all the businesses and workers that were studied, only high school-age workers were dealing with lower employment rates in small businesses. But on the bright side, the higher wages often allowed teenage employees to work a little less and study more.
Likewise, the study links other studies to show how low-income working students can benefit from this, which states that a 10% increase in the minimum wage reduces the high school dropout rate by about 10%. “Given the many benefits of educational attainment,” the authors write, “the long-term impact on teens substituting time studying for time working in the labor market should be considered a benefit, not a cost, of minimum wage policies.”
Overall, this study shows how a raise in the minimum wage can have a positive effect on customers, employers, and employees in small businesses.