$15 Minimum wage would be a disaster for Md.’s small business; Guest column

The Maryland General Assembly is debating a bill to raise the minimum wage to $15 an hour, eliminate the tipped wage, and get rid of exclusions for teenagers, seasonal amusement workers, and farm labor.

The supporters theorize that this is the way to raise people up from poverty. Small business owners know the reality - it just won't work out that way. Unfortunately, many employees at the bottom of the pay scale are more likely to lose hours or their jobs. It's basic economics.

Maryland's minimum wage rose 39 percent in the last four years to $10.10. If it soars to $15 that will add another 48 percent increase to the cost of wages. Those are huge increases for small businesses.

Every time the minimum wage goes up, employers also pay more in payroll costs, workers' comp insurance, and benefits. Pay will also need to be increased for workers already making the minimum or just above, to retain employees, their morale, and the level of production.

While employers of scale like Amazon and Target may be able to set their base wage at $15, this is not the case with many Maryland small businesses, especially in retail, hospitality, and seasonal businesses, or any employers of entry-level and low-skilled workers.

The economic equation is simple. The owner can't raise prices if customers won't pay more. They can't take it from profits if profits are low, so something else must give. That's why they are forced to trim worker hours or jobs. Yet, those first jobs are very important to someone trying to enter the workforce.

Think of it this way. If the cost for wages for an employee taking orders at a pizza or sub shop making $10.10 must be paid $15, that's $10 thousand more in wages per year. The cost of an ordering kiosk is about $12 thousand. The technology will work round the clock and pay for itself in just over a year.

We see these kiosks now at many McDonald's. The latest October 2018 study commissioned by Seattle on that city's incremental rise to a $15 minimum wage found that at $13, the least experienced workers saw no significant change in weekly pay, although those with more experience did see an $8 to $12 weekly increase.

Yet, a quarter of that increase was attributed to employees making up for lost hours in Seattle at other jobs outside city limits. There was also a significant reduction in the rate of new employees into the workforce. In other words, job opportunities for those with no skills or no experience disappeared, and they didn't take home more money.

When the same bill was proposed in Maryland last year, NFIB contracted to have an economic forecast done to determine the impact based on existing regional data. It showed Maryland private sector employment would be reduced by over 99,000 jobs and real output would go down over $61 billion over ten years.

More than half of the job losses would be in the small business sector of the economy. Not good news for many employees, small businesses, or the state economy.

There is a misperception about the entrepreneurs who start small businesses or mom and pop shops, and about the minimum wage. In large part, those business owners are not raking in large salaries, they work long hours, and they take great financial risks. They care a lot for their employees.

The minimum wage was never intended to be a "living wage" but an entry-level wage for workers to get their first job experience. That is the reality.

Mike O'Halloran is the state director of the National Federation of Independent Businesses, which advocates on behalf of thousands of small businesses in Maryland.

Credit: Mike O'Halloran - Mike O'Halloran is the state director of the National Federation of Independent Businesses, which advocates on behalf of thousands of small businesses in Maryland.