September 21, 2014

Minimum Wage Bill Fails in Senate, Small Business Groups Respond

minimum wage bill fails

A Senate bill that would have raised the federal minimum wage from $7.25 to $10.10 failed in the Senate Wednesday. But President Obama and other supporters have vowed to make it an issue in the 2014 elections.

Small business leaders want elected officials to know they consider it an important issue too. The International Franchise Association, which supports franchise owners worldwide, thanked Senate leaders who opposed the bill yesterday.

In an official response to the Senate decision yesterday, International Franchise Association President & CEO Steve Caldeira explained:

“We commend the Senate’s decision to reject legislation to drastically raise the minimum wage, and thank the Senators who took a stand to protect our nation’s small business franchise owners. Congress’ own economists at the Congressional Budget Office have said that an increase in the minimum wage would reduce employment, and thankfully enough Senators heeded this dire warning in a sluggish and still fragile economy.”

While supporters of a minimum wage increase have tried to make the debate about a conflict between wealthy and working Americans, Caldeira made it clear most franchise owners are hardly flush. He said the difference between the current minimum wage and a higher rate would likely be the difference between survival and failure for some:

“For many franchise businesses that are labor-intensive and already operate on thin profit margins, this legislation could have pushed some operators out of business. Businesses should be able to determine the most competitive starting wage and subsequent raises for their employees within their industry and local economy.”

The National Federation of Independent Businesses promised to make the bill a “Key Vote” with its membership, suggesting the vote would be used by the NFIB when scoring legislators on small business issues.

In an official statement leading up to the vote, NFIB Manager of Legislative Affairs Ashley Fingarson had this to say about the legislation:

“Yet again, lawmakers are targeting the nation’s economic engine – small business owners – with an anti-employer agenda. With increases to health care costs, higher taxes, more costly regulations, and now a dramatic minimum wage increase, small business owners simply can’t afford another excessive government mandate. It could not be clearer from our studies and the recent Congressional Budget Office report – raising the minimum wage will kill jobs and stifle economic output.”

In one example raised by the NFIB, a pizza parlor selling 100 pies for 360 days a year at $10 makes $360,000 a year.

If the business has 10 minimum wage employees at $7 per hour working 2,000 hours a year, then labor costs would be about $140,000. Add to this food costs, depreciation, insurance, supplies, licenses, rent, utilities and equipment for another $170,000.

Profits are now $50,000 annually, certainly far from the income of a “wealthy” person. Now raise the minimum wage by just $1, not the amount advocates want it to increase, and profits from our franchise owner are now just $30,000 a year.

The owner can try to raise prices, of course. But this may decrease the demand for the product, and perhaps result in layoffs.

Capitol Photo via Shutterstock

10 Comments ▼

Shawn Hessinger - Editor


Shawn Hessinger Shawn Hessinger is the Editor for Small Business Trends. He is a journalist and social media networker with more than a decade of experience in the traditional newspaper business before moving to the digital world. He was the former community manager of BizSugar and the former community editor at AllAnalytics, a site dedicated to professionals in the business intelligence and analytics community.

10 Reactions

  1. I guess you can view it in more than just the perspective of employees. While I can say that the news is quite depressing for me, I like how they explained their side and think about how small businesses will function with this. Maybe they can approach some form of middle ground.

  2. Thanks for reporting on this, Shawn.

    I’m of the opposite view.

    If people make more money they generally spend more money-because they can.

    Why do you think the US government sometimes sends “rebate” checks to taxpayers?

    I know why: To get taxpayers to spend money…to add fuel to the economy!

    A lot of people are being short-sighted, here.

    Our economy would improve if more people were making more money. Dah!

    The Franchise King®

  3. Republicans need to stop “shooting themselves in the foot” and offer a counter, more reasonable increase to the minimum wage. Democrats proposal clearly detrimental as too large in too short a period of time. On the other hand, democrats gain tremendous popularity with the masses by showing Republicans as greedy and out of touch with the people. (Especially seeing published studies of CEO’s now earning 331% of average hourly employee compensation).

  4. This was the right decision. Controlling price of any commodity (and labor is a commodity anywhere near the minimum wage) is generally a very bad idea. It leads to many unintended consequences.

    One important consequence is reduction in the labor force. Like any other goods, if price of labor goes up, less of it will be demanded. This is not just a theory–it WILL happen. So those who remain in the labor market at the artificially high rate will benefit, but many more will be out of a job.

    Some increase in cost WILL be passed on to the consumers. That means higher price for all Americans. The rich could care less, but it will impact the poor and the needy the most.

    So what’s the right solution? I would say expansion of Earned Income Tax Credit is a great start. Give help directly to those who need it. Don’t mess with the market!

  5. Davis @ Schedulehead

    It is a hard balance to manage. Cost of living is increasing in many places as inflation continues while minimum wage maintains the same since 2009. There was a 10% inflation increase in that time period. Less money people have to spend, the less money companies can make. Making sure your customers have money to spend on you is important as well. In many situations the workers can also be the customers or the final product consumer. At the same time an increase in minimum wage can also lead to price increases and/or higher unemployment which can damage the economy in general. Another change is possibly the addition of diversified and cost controlled degree programs and expanding the job market in sectors away from franchise jobs.

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