Depending on whom you believe, more than doubling the federal minimum wage from $7.25 to $15 would either be the great equalizer for the working poor or the beginning of the end for small business.
The truth is that neither side has much of a leg to stand on. Not anymore. Because in the dozen years since Congress last set the federal floor, new state and local minimums, combined with naturally rising wages, all but ensure that increasing the federal minimum to $15 an hour would barely make a dent in the economy — except, of course, for a small patch of unskilled workers who desperately need the money.
How small a group? In 2019, the last year before the pandemic, just 1.6 million workers — 1.9% of the nation’s 82.3 million hourly wage earners — made $7.25 an hour or less. That percentage has been falling steadily since 2010, when 4.4 million workers, or 6%, made that little.
Indeed, the debate is now much ado about nothing. Which is why business associations such as the U.S. Chamber of Commerce are increasingly isolated in their opposition to a $15 federal floor. Amazon, Best Buy, Costco and others already pay at least $15 an hour to start. Restaurant chains such as the Cheesecake Factory and Denny’s downplay the impact. Even McDonald’s, the poster child for low-cost meals, has stopped supporting efforts to combat higher minimums.
For Californians, the issue appears to be even less relevant, given that the state has been working toward a $15 minimum since January 2017. Some municipalities have already crossed the $15 threshold. In Berkeley and San Francisco, for example, the minimum wage is now $16.07 and rising. In Emeryville, it’s $16.84.
That may sound high. But in the Bay Area, home to three of the nation’s 10 most expensive cities, those wage floors are arguably behind the curve. Alex McIntosh, co-founder and CEO at Thrive Natural Care, told me his San Francisco company starts entry-level folks at $35 an hour. Thrive makes specialty skin care products like scrubs, lotions and sunscreens and sells them on Amazon, in stores such as Whole Foods as well as on the Thrive website.
“From a moral standpoint, we want to pay $35 an hour,” McIntosh said. “But frankly, $35 an hour also keeps us competitive in the Bay Area.”
Certainly, it can be tougher for businesses to pay higher wages in lower-cost areas of the country, but not nearly as tough as business advocacy groups would have you believe. Thanks to a pair of overwhelmingly popular state referendums, for example, Arkansas now has one of the highest minimum wage floors in the country.
Surveys suggest that few small-business owners oppose raising the minimum wage. What they’re dead-set against are drastic year-on-year pay hikes, which they say don’t give them enough time to absorb increases.
That’s why Arkansas, the state with the nation’s second-lowest cost of living, has been successful raising the floor to $11 this year from $6.25 in 2014. Aside from a 20% bump to $7.50 in 2015, subsequent increases have been held to 10% or less.
That same approach also has worked well for California, the state with the second-highest cost of living. The most recent legislation, enacted in 2016, has been raising the minimum wage less than 10% a year. Businesses with less than 25 employees are on that same path, only delayed by a year.
So as it turns out, California may have a thing or two to contribute to the national minimum wage debate after all.
Mike Feibus is president and principal analyst of FeibusTech, a Scottsdale, Arizona-based technology market research and consulting firm.