Raising the minimum wage—Beyond Wal-Mart
As the debate over raising the minimum wage continues on, the usual suspects — including retail and fast food behemoths — are being held up as consummate symbols of corporate evil and greed and poster children for why the minimum wage should be raised. However, what I never hear discussed is the impact that any change in minimum wage legislation would have on small business.
Now, for full disclosure: I am opposed to a raise in the minimum wage, in general, for a slew of reasons. I believe that workers should be paid as much or as little as they are worth and that both employees and employers should be able to make an agreement without intervention. I further believe that raising the minimum wage will adversely impact the exact people that it's purporting to help. Moreover, I am also very concerned about the effect of such change on small businesses in the United States.
One of the biggest issues with a legislated minimum wage lies within its own name. It's a steadfast minimum and regardless of your circumstances as a business owner, if you want to hire, you must pay at least that minimum.
The emotional arguers always focus on the largest of corporations, like in this piece about Wal-Mart and McDonald's. However, there are only slightly more than 18,000 "large" businesses in this country. The lion's share of all business is small business. The U.S. has nearly 28 million small businesses, with approximately 6 million of those businesses having employees. In fact, more than 50 percent of the working population is employed by small business.
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So, while I disagree with the premise to begin with, I challenge those who want to penalize a handful of big companies with a change that will affect millions of small businesses who would have to abide by that same changed legislation as well.
While many people profess concern about the plight of workers — those workers, mind you, who have of their own free will agreed to trade their skill level and time for a certain wage — rarely have I heard concern for the small business owners. These are men and women who risk their own capital, as well as their time and effort to make a living and hopefully, have the opportunity to grow and create jobs too.
(Read more: Wal-Mart holds food drive for its employees)
As I discuss in my book, "The Entrepreneur Equation," most small businesses aren't financial home runs. The majority earn less than $100,000 in revenue a year, aren't profitable over their lifetimes and constantly struggle. Many business owners work more hours for the same or less pay than they did when they had a job. Many lose money for the first few years while the business is getting settled. The greater majority fail within in five years.
Any minimum-wage increase would affect all entrepreneurs, whether you are starting a business right out of college or a stay-at home mom looking for some incremental income. Even if someone wants to help you grow your business, you can't hire them on an hourly basis unless you pay the minimum wage, regardless of your — or their — circumstances.
Contending with a bigger minimum-wage creates many challenges for small business. It may mean that the small business has to wait longer to hire a new employee, making it more difficult to grow and riskier to start a business to begin with. It can also lead to a small-business owner hiring fewer employees. Raising the minimum wage typically means that those earning above the minimum wage want a bump, too, as they note the value of their skills above the minimum-wage earner. As these costs accumulate, the small-business owner will bear the cost differential and take home less pay. Ironically enough, when adding up their time, it may mean that for years that small-business owner takes home an amount less than the minimum wage on an hourly basis.
So, are we going to guarantee the small-business owner's income? We certainly shouldn't — just as we shouldn't for anyone who works for a small business or for any business, for that matter. Appropriate compensation is what the market sorts out, if allowed to operate freely.
We cannot forget about the impact that small business has on our economy. If we want to encourage innovation, growth, jobs and overall prosperity, we have to take the needs of small-business owners seriously. And this means that when we look to policies, we have to remember the scope of small business in the United States and what those policies will mean to the entrepreneurs behind them.
They may not get the headlines, but small business bears the brunt of business legislation.
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— By Carol Roth
Carol Roth is a CNBC contributor, a "recovering" investment banker and author of "The Entrepreneur Equation." Follow her on Twitter