Does Business Have The Last Word On The Minimum Wage Hike?
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With the need to get money into the hands of the average consumer, the minimum wage has been hike up to $7.25 from $6.55. Some states already had similar minimum wage laws, but the Federal law now makes the minimum wage hike across the board. The celebration for workers, particularly those using part time jobs or retail services jobs to survive this recession, may be short-lived. Businesses may eventually have the last word on what the market can support for a wage increase that allows them to continue doing business despite increased labor costs. If they see that the increase in the minimum wage is impacting their already meager returns, they may opt to layoff even more workers, or at least cut back hours for some. On the other hand, there is a real possibility that if the minimum wage hike increases the confidence in the consumer marketplace, it can help to increase business and have a positive effect too.
How That Impacts Tax Revenues
States are already reeling under the loss of their tax base, whether it’s from foreclosures to people who have lost jobs. When people lose jobs, the tax loss isn’t just in income taxes, but also property taxes and sales taxes from people who can no longer afford the same standard of living as before. In addition, the states are experiencing record unemployment levels, which cuts into their revenues as they need to hand out more benefits to a workforce that remains idle as the recession wears on. Raising the minimum rate can add some money into the pockets of those left with jobs, but it doesn’t really impact positively those already out of work. By the contrary, the rise in minimum wage may make it harder for businesses to justify adding more people to their workforce. They may decide to reduce hours for those employees that are on the payroll too. If there are fewer people with jobs to buy the products and services that businesses offer, it can be a nasty cycle of more layoffs, less tax revenue, and less business until something shifts in the marketplace.
States may hope to gain some footing with the increase in the minimum wage, all taxable as income, but that is probably not going to be the case. The positive effects of the increase should be insignificant when compared to the potential negative effects. Until the market recuperates, business owners are being squeezed on several fronts: taxes, stricter lending criteria, and now the minimum wage. In order for businesses to continue to front the costs of the recession, with decreasing profits and increasing losses and operating costs, they will take the only avenue possible to them: layoff or close the business. As more businesses close shop or reduce their workforce, the states will plunge more and more into red ink until some relief is given to businesses that are trying to stay afloat. If states can find a way for businesses to absorb the additional expense while easing some of the economic pressures that businesses are facing, it can provide some incentive for businesses to persevere instead of folding or walking away.
Will It Be Worth The Risk?
Is this law going to be worth the risk of losing even more jobs in a sour economy? Only time is going to tell. If the recover really is underway, businesses may be able to support some additional expenses, if they see their sales increasing too. However, if the trends continues to show weak consumer sales and high operating and employee expenses, more and more businesses will begin to reassess their primary reason for staying in business. The shift that needs to take place in the marketplace is a restoration of consumer confidence, which typically comes with steady and secure jobs. However, it is possible the increase in the minimum wage may help to reduce the anxiety presently felt by consumers, who might end up helping thaw the recession more. In a way, the consumer can play a major role here in helping businesses to absorb the additional costs by simply going out and buying more with their wages. If that were to occur, a positive cycle of confidence will take hold and the minimum wage hike will have helped to spur positive economic growth, rather than being another unrecoverable expense for businesses already stressed in this recession. Then, we will see some positive effects of the minimum wage law, although the risks for businesses still remain.
This entry was posted on Tuesday, December 8th, 2009 at 3:33 pm and is filed under Economy & Business News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
