Paying people higher wages sounds like it would be a good thing. New York City is currently considering a proposal to raise minimum wage from $8 to $16. However, due to the economic realities of business, such changes can set off a ripple effect threatening the existence of a number of companies.
A recent boom in retail jobs has not resulted in a corresponding increase in earnings for low-wage workers, causing an examination of minimum wage laws in cities throughout the country. In June, Seattle’s City Council voted to increase local minimum wage to $15. The change takes effect in 2018 for large employers, with others to follow suit in 2021.
Not surprisingly, it’s the smaller companies that stand to suffer the greatest consequences. On the heels of bearing the increased costs of compliance with the Affordable Care Act, they’re facing another hike in expenses that will cut into their already modest profits.
Part of the problem is that the change causes a significant shift in overall pay scales. In addition to paying the minimum-wage workers, business owners will be forced to raise wages for all employees in order to appropriately compensate skilled workers. Faced with these disproportionate increases in operating expenses, many companies will have to choose between two undesirable choices: raising prices or reducing staff.
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