In recent weeks, so-called “worker centers” have caught the public’s eye with widespread walkouts at national restaurant chains. These groups – which are union-founded and funded – have demanded a minimum wage of at least $15, arguing that large corporations with highly-paid CEOs can afford to pay employees more.
We’ve previously debunked the idea that the level of CEO pay helps explain the level of entry-level wages. And the economics faced by service industry businesses are similar no matter the size of their workforce.
Still, given the high failure rate of small businesses, there’s a unique sensitivity to wage mandates that will hurt a small employer’s bottom line. And unfortunately for wage hike advocates, Census Bureau data show that the majority of minimum wage employees do not work at large corporations with 1000+ employees. In fact, nearly half of minimum wage earners work at small businesses with fewer than 100 employees.
Economic research has shown that wage mandates are particularly hard on small business employees. For instance, each 10 percent wage hike is associated with anywhere from a 4.6 percent to 9.0 percent drop in teen employment at small businesses. With an unemployment rate for young adults that’s been above 20 percent for five years, policymakers should be particularly cautious about foisting a new mandate on the country’s small employers.