The Effects of the Minimum Wage: A Business Response

By Levin-Waldman, Oren M. | Journal of Economic Issues, September 2000 | Go to article overview

The Effects of the Minimum Wage: A Business Response


Levin-Waldman, Oren M., Journal of Economic Issues


A common refrain from politicians who oppose increases in the minimum wage is that an increase will hurt small businesses, possibly affecting their ability to remain in business [Wiseman 1998]. And yet, very little information about what businesses actually think exists. There is considerable speculation about them based on theoretical constructs, and additionally there may even be anecdotal evidence that they will be adversely affected, but to date no real studies have been done to ascertain how either they responded to previous increases in the minimum wage or how they might respond to fixture increases. Despite the fact that small businesses may employ half of private sector employees [Wiatrowski 1994], little is known about their hiring practices and what factors are likely to affect them.

A survey of employer responses represents a much needed contribution to the literature. Still, the scope of such a survey has its limitations. First, survey data based on the opinions of employers may not enable us to make conclusive generalizations. Second, the responses that employers give at the moment are based on the particulars of their economic situations. Employers who do not believe that an increase in the minimum wage will necessarily adversely affect them now while things are good may feel differently as their economic situations change. To this extent, data based on opinion may only represent a snapshot in time. Despite these limitations, it is important to hear from those employers that in theory--or according to the conventional wisdom--are likely to be most affected. The problem with much of the data is that it ignores this part of the story, which is quite important. After all, how can we know whether, and to what extent, the minimum wage will affect them if we do not ask? Moreover, the purpo se of this survey isn't so much to serve as a decisive test of orthodox theory under conditions of perfect competition as it is to add to the newer literature in an attempt to paint a more complete picture of the minimum wage.

The Survey

The Levy Institute Survey of small business was designed to obtain information about the hiring practices of small business as they relate to questions concerning the recent reform of the welfare system and increases in the minimum wage. It is based on a stratified sample of 560 small businesses (businesses with no more than 500 employees, which is consistent with the definition of small businesses by the Small Business Administration) across industry types, randomly selected from a national directory for small businesses. The survey was conducted by phone over a three week period during winter 1998. Respondents were asked whether the last minimum wage increase, which took effect during fall 1997, affected their hiring and employment decisions. They were also asked whether their decisions would be affected by a further increase in the minimum wage from $5.15 to $6.00 an hour.

Waltman et. al raise the question of whether an increase in the minimum wage would lead to an increase in business failures, as is often claimed among those who oppose increases. Looking at data on failure rates published by Dunn and Bradstreet, they found there to be no more business failures in those years following minimum wage increases than in those years in which there were no increases. Not only were there no more business failures following minimum wage increases, but the rate of failures appeared to be less the larger the increase was [Waltman et al. 19981. Similarly, as Table 1 makes clear, very few small businesses (6.2 percent) in the Levy survey felt that the recent hike in the minimum wage affected their overall hiring or employment practices. Although the percentage of businesses who would be affected were the minimum wage increased to $6.00 an hour is somewhat larger (20.7 percent), an increase of more than 300 percent, it is still small relative to the entire sample. The percentages alone in dicate that minimum wage increases would not have the dire consequences often predicted. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Effects of the Minimum Wage: A Business Response
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.