PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

House Small Business Committee Letter on “Perspectives from Main Street: Raising the Wage”

By at 24 February, 2021, 9:37 am

The Honorable Nydia Velazquez

Chairwoman

House Small Business Committee

 

The Honorable Blaine Luetkemeyer

Ranking Member

House Small Business Committee

 

Dear Chairwoman Velazquez and Ranking Member Luetkemeyer:

On behalf of the Small Business & Entrepreneurship Council, I am writing to express our very strong concerns about legislation to increase the federal minimum wage to $15 per hour. Even a phased-in approach to raising labor costs will have a harsh impact on small businesses, especially at a time when incoming revenues remain depressed and costs associated with operating during the pandemic are higher given the investment small firms are making in PPE, and other technologies to operate under shutdowns and in the “touchless economy.”

Phasing in the federal minimum wage to $15 per hour, as included in the $1.9 trillion package moving through the House, would cost 1.4 million jobs over the next four years, according to a Congressional Budget Office (CBO) report. Yes, the report also notes that a share of workers will experience higher wages, but the cost is steep for the 1.4 million workers whose jobs will be wiped out as a result of the increase. Raising the minimum wage will have other deleterious consequences as well. According to CBO:

● “Higher wages would increase the cost to employers of producing goods and services.”

● “Employers would pass some of those increased costs on to consumers in the form of higher prices, and those higher prices, in turn, would lead consumers to purchase fewer goods and services.”

● “Young, less educated people would account for a disproportionate share of those reductions in employment.”

A February 2021 survey by the National Restaurant Association found the initial phase of the wage hike ($7.25 to $9.50) and federal tipped wages ($2.13 to $4.95) would have a negative impact on 82% of restaurants’ ability to recover (only 2% said it would have a positive effect).

After the wage is fully phased in to $15 and the tipped wage eliminated:

● Nearly all restaurant operators (98%) say they will increase menu prices as a result of the higher minimum wage levels.

● Eighty-four percent of restaurant operators say they will likely cut jobs and employee hours from normal levels, while 75% say they will cut employee benefits from normal levels.

● Sixty-five percent of operators say they will likely add equipment or technology that reduces the need for employees in their restaurant.

As I noted in my recent House Small Business Committee testimony:

“Some of the same difficult issues that small business owners endured during 2020 continue to challenge them in early 2021. Lost revenue is one of them. The Opportunity Insights Economic Tracker reported that small business revenue decreased 31.1% in 2020, and unfortunately there has not been much of a rebound to start the new year. According to the Census Bureau’s Small Business Pulse Survey, 40% of small businesses experienced a decline in revenue during the first two weeks of January 2021. Only 5% saw an increase during the second week of January 2021.”

At a time when small business owners are still struggling under lower revenue streams and tight cash, raising their labor costs would inflict a painful blow as they continue to dig out of their financial hole. According to a new Goldman Sachs 10,000 Small Businesses Survey, 50% of small business owners have dipped into their personal savings, and 58% have forgone paying themselves. Only 11% are very confident they will be able to maintain payroll if no further government relief is needed.

Small businesses continue to look for support from their government, not new costs that will sink many and destroy jobs. Long term relief and policy stability is needed for Main Street businesses. Thank you for the opportunity to weigh in on this critical issue, and your support of small business America. Please feel free to contact SBE Council with questions or additional information.

Sincerely,

Karen Kerrigan, President & CEO

 

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