Small Business and the Minimum Wage

Do small businesses change their hiring and employment practices in response to an increase in the minimum wage? The Levy Institute conducts a national survey of small firms in many industries to find out. It has long been the conventional wisdom that an increase in the minimum wage results in lower employment. This wisdom stems from both theoretical precepts taught in most economic textbooks and statements from employers regarding their anticipated reaction to an increase. It is also suggested that much of the opposition to the minimum wage comes from the small business community. Arguments against raising the minimum wage presume that an increase reduces profits for small businesses and forces them to lay workers off. There is little empirical evidence measuring the actual responses of small businesses to changes in the minimum wage. What is available is anecdotal evidence, the results of a few studies by academics on the effects of the minimum wage on the teen labor market, and the predictions of the minimum wage study commission that a 10 percent increase in the minimum wage might result in a 1 percent reduction in teen employment (Kosters and Welch