Job losses, income gain: What increasing the minimum wage means for small businesses, SC employees

South Carolina could be impacted more than most other states by President Joe Biden’s proposal to raise the minimum wage to $15.

In 2019, South Carolina had the highest rate of workers earning at or below the minimum wage at 5.4%. That means Biden’s proposal would more than double the pay of 64,000 South Carolinians.

Supporters of the hike say it would move thousands of South Carolinians out of poverty while helping the government and the economy overall. It’s a “win-win,” said Columbia Urban League President and CEO J.T. McLawhorn.

But opponents say the increase would be “catastrophic” for many businesses. The hike could cause people to lose their jobs or work fewer hours. Prices on many goods and services may also rise.

The increase from the $7.25 level to $15 an hour could cut employment by 1.4 million nationally, according to a nonpartisan Congressional Budget Office (CBO) study released Feb. 8. But a hike also would and decrease the number of individuals below the poverty line by 900,000, according to the study.

Because income for low-income families would rise, the minimum wage increase could cause a decline in the number of individuals enrolled in the Supplemental Nutrition Assistance Program, according to the CBO study. McLawhorn said this is one example where the wage hike could decrease government spending.

For a Columbia resident with no children, the cost of living is approximately $35,325 considering housing, food, child care, transportation, health care and other expenses, according to the Economic Policy Institute.

An individual paid minimum wage working 40 hours a week in South Carolina would make approximately $15,080 a year. South Carolina residents who make $15,684 or less may qualify for food stamps.

“There are a lot of workers who work full time on minimum wage and still have to be on food stamps. That is a burden,” Orgul Ozturk, an associate professor at USC’s Darla Moore School of Business who researches labor economics, said.

The federal minimum wage was last changed in 2009, when and it increased from $6.55 to $7.25.

To address concerns about whether an employee has the skills to be paid an increased minimum wage, McLawhorn said registered apprenticeships and dual education programs should be the focus, ultimately increasing employee productivity for employers.

“There’s a gap between the current workforce and the skills that many of these workers who are working in the unskilled labor sector, the service sector,” McLawhorn said. “What we have to do is close that gap and a registered apprenticeship is an opportunity to close that gap.”

South Carolina is one of five states that does not currently have a state minimum wage law so employees under the Fair Labor Standards Act must be paid at least the federal minimum wage.

“There are people who are hurting who are getting paid these low-wage jobs,” said Ruth Jordan, manager of the City of Charleston Minority and Women-Owned Business Enterprises, who supports the $15 minimum wage increase.

Jordan said that small businesses may face a negative impact at first, but that over time the more money people have the more they would invest.

“You won’t lose jobs but you may lose profits,” Jordan said. “If I need ten people to work my business, I am not going to be able to operate with five.”

Demand for goods and services may increase in the short term because lower-income families typically spend more of any additional income, according to the CBO study. But the higher wage could also increase the cost on employers, which could lead to higher prices, fewer goods and services and reduced employment.

“There’s that balance whenever you run a business of how you are able to turn a profit,” Ben Homeyer, state director for the National Federation of Independent Business (NFIB) in South Carolina, said. “And in many cases for a small business, it is not a large profit. So you have to cut staff to maintain that or you have to raise prices.”

And raising prices has consequences, said Ozturk of the USC business school. “Economic theory tells you, all else equal, when you increase the price of something, you are going to have less demand for it,” Ozturk said.

She said that the increase in prices is not going to be “one-to-one.” It will depend on the elasticity of supply and demand. Elasticity describes how the behavior of buyers and sellers changes in reaction to price adjustments.

And if there is inflation that would be a “welcome sign” in a recession. It would indicate the economy is growing again.

NFIB is the largest small business association in the U.S., and Homeyer currently works with about 4,000 members in South Carolina. He said that in a recent survey of the members, 92% of respondents said more than doubling the minimum wage is something that they are “extremely concerned” about, he said.

Homeyer said businesses try to pay higher wages to stay competitive but some can’t.

“Those that do pay minimum wage do so because they have to. Because they can’t afford to pay more,” Homeyer said.

If the minimum wage does increase to $15, Ozturk said that the economy may face deadweight loss, where there will be people seeking employment and are willing to work for a lower price but because of the price of labor will not be employed.

“They are going to more of those 19-hour or 34-hour jobs, just below the full-time employment, so they don’t have to pay benefits,” Ozturk said. “They are able to cut the levels of benefits because they may be paying more wage, the actual monetary payments or the nonmonetary or fringe benefits may be adjusted to go down.”

Full-time employment is 35-hours or more per week at one job, according to the U.S. Bureau of Labor Statistics.

For businesses that oppose the increase in the minimum wage, Homeyer recommends calling state representatives and senators.

“My folks are the people that we see every day when you’re out in your community, and trying to do the right thing, employing people locally, making sure that when people come in that they’re safe, that the environment is good to be there,” Homeyer said. “This rocking their boat would be really hard for them to continue.”

This story was originally published February 11, 2021 at 10:29 AM.