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Minimum Wage: The Small Business Argument

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One standard argument against raising the minimum wage is based on the claim that it would hurt small businesses. This argument has some merit, at least in the context of small businesses with narrow profit margins or relatively low income. While companies like Amazon and McDonalds could increase employee wages while still making a handsome profit for upper management and shareholders, a small business that is just barely making a profit or has limited income could be hard pressed to increase wages without running at a loss. To use an imaginary example, suppose Larry owns Larry’s Lawn Care and pays his workers $10 an hour. He charges his customers what amounts to $20 an hour for the labor of his employees and has expenses equal to about $5 an hour, so Larry makes a profit of $5 for every hour an employee works. He also draws a salary for his work running the business and working on lawns—this is worked in the billing on top of the $20 per hour charged for labor. But if the minimum wage were increased to $15 an hour then Larry would make no profit unless he cut expenses or increased the cost. If cutting expenses is not a viable option, then Larry will need to increase the cost of his services to profit from his business. This increase, some would argue, could cause a loss of business which would lead to fewer hours for employees—thus causing a loss of income or even resulting in employees being fired. It could be countered that if Larry’s business is breaking even while Larry is earning a wage for his own labor, then everything is good—Larry and his workers would seem to be getting what they deserve within the context of what customers are willing to pay for the services. But if the business was experiencing a loss and could not make full payroll because the wages and the bare bones cost of operating the business exceeded what customers would pay, then it can be claimed that the increase in wages hurt the business and employees. This is the sort of scenario used in. . .

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News source: A Philosopher's Blog

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