The Small Business Owner’s Case for a Higher Minimum Wage

UPDATE: I re-wrote the below post for Slate, it’s posted here. As working professionally with an editor tends to make writing better, I recommend that piece over this one.

I don’t know what it’s like where you are, but around these parts there’s a strong movement forming to raise the minimum wage. Most of the municipal proposals are in the $10-13/hour range, but the zeitgeist seems to be heralding a $15/hour minimum wage.

People getting paid more for their work is a heartwarming notion, so it can be pretty easy to get behind these proposals on an emotional level. Economically, one sees macroeconomic cases made both for and against a higher minimum wage. I haven’t found the arguments in either direction particularly compelling. At the small business owners’ level, I hear from people both in favor and against raising the minimum wage.

But who are we kidding – most people are going to give or withhold their support for this initiative based largely on their perceived self-interest. So here’s my self-interest — as a small business owner, I selfishly think a higher minimum wage is great for me. Make it $15 an hour. Make it $20. The higher, the better. Make it high enough that dishwashers get paid as well as office workers.

The reason is this: the biggest downward force on the profits of our independent businesses is price “competition” from large, well, capitalized corporations. Prices at the local superstore, supermarket and chain restaurant anchor our customers’ understanding of what things cost. In other words, the reason it’s hard to sell a $15 artisanal burger in most markets is not because the product isn’t worth $15 (it can be), and it’s not because making the burger doesn’t cost the business that much (it can cost that or more) — it’s because a burger costs half that or less in many corporate retail environments.

The way these big companies are able to generate profits while selling things so cheaply is by externalizing certain costs that we small businesses can’t externalize. These companies, alone or in aggregate, have the resources to produce goods in areas with lax environmental regulations, externalizing some of their production costs onto the environment. They can transport the goods from these remote places over subsidized roads using subsidized fuel, externalizing those costs as well to the taxpayer while undercutting the local production of goods within communities.

Subtly, a nonlivable minimum wage — and minimum wages under $15 are basically unlivable wages — is also a kind of externalization of costs. These employees work a full-time job, but are unable to afford health care, education, quality food or a healthy routine. The difference between what they make and what they need is paid, one way or another, by the community in which they live and by taxpayers.

Simply put, when Global Megastore Inc pays its employees less than they can live a decent life on, the difference is very clearly paid by the rest of us.

Now, if the minimum wage rises and the cost of human resources has to be borne in full by the employer, then the price that large companies charge for their products will have to move closer to their true cost. That means that we small businesses — who generally have to charge nearer the true cost of things, because we lack the ability to externalize many costs — will be competing on a more level playing field with the big guys.

And, in this environment where fewer costs are borne by the community and where things are therefore priced higher to the purchaser, the purchaser is likely to be more thoughtful about her choices. Which is where we independent businesses have our advantage. With our small size, we can be nimble in our offerings; with our personal involvement in our communities, we can develop a kind of trust with our clients that can’t be matched by mere brands. And when everybody in the market has cash to spend, and every burger costs at least $15, you can sell a burger based primarily on its quality.

I saw a little of this in action some years back when I spent some time in Australia, where the minimum wage has typically been higher than in the US (it’s currently hovering around US$16/hour). While there were plenty of big companies and the costs of opening even a small business were higher than in the US, the biggest differences that stood out to me was the higher quality of most everything for sale, and the care with which people made purchasing decisions. I’m sure there are other factors at work, too, but I think the higher minimum wage helped create a context for quality to thrive.

TL;DR: a higher minimum wage helps create an environment in which thoughtful, high-quality independent businesses can thrive by outfoxing our well-capitalized competitors.

NB: Relatedly, but not exactly part of this argument, I enjoyed this factoid from Inequality.org:

At the top 1 percent of the American income distribution, average incomes rose 194 percent between 1974 and 2011. Had U.S. minimum wages risen at the same pace as U.S. maximum wages, the minimum wage would now be $26.96 an hour.

Today, $15 — tomorrow, $27!

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