How Would Raising Minimum Wage Impact Small Businesses in Ohio?

Democrats believe that raising the minimum wage would increase economic activity and spur job growth. But many Republicans believe it would force businesses to lay off employees to cope with the costs of higher wages.

Sep 2, 2021 at 3:13 pm
Supporters of raising the minimum wage say it would boost productivity and worker morale, but opponents say it would hurt small businesses. - Photo: AdobeStock
Photo: AdobeStock
Supporters of raising the minimum wage say it would boost productivity and worker morale, but opponents say it would hurt small businesses.

Ohio's minimum wage is currently $1.55 more than the federal minimum wage, at $8.80 an hour, and yet many Ohioans are searching for better-paying jobs.

Tamra Barth earned $11 an hour working as a baker at The Pink Bandana Bakery, a small business in Mentor, Ohio, for three years until recently, when Barth decided to search for a job with a bigger company and higher wages.

"The fact that my paycheck is enough to pay my mortgage without relying on my roommate's rent is huge," she said. "Owning a house, having even just a few extra dollars if something breaks or if you need to buy a weed whacker, I now have it instead of needing to save and budget for all of those minor things."

In recent years, the topic of raising the minimum wage has resulted in heated debates among politicians. Democrats believe that raising the minimum wage would increase economic activity and spur job growth. But many Republicans believe it would force businesses to lay off employees to cope with the costs of higher wages.

Proponents of raising the minimum wage argue wages have not kept up with inflation; opponents believe it would increase the price of consumer goods.Congressional Democrats recently introduced the Raise the Wage Act of 2021, which would gradually increase the federal minimum wage from its current $7.25 an hour to $15 an hour by 2025.

At Ohio's current $8.80 minimum wage, a worker makes $18,096 annually. According to the Massachusetts Institute of Technology's Living Wage Calculator, the cost of living for one adult in Ohio is $13.16, a $4.46 difference from the current minimum wage. The cost of living for one adult and one child is $28.58, a $19.88 difference.

In the Ohio Legislature, Sen. Cecil Thomas (D-Cincinnati) and Sen. Hearcel F. Craig (D-Columbus) introduced Senate Bill 51 on March 10, 2021, which would raise the minimum wage to $15 in increments by 2027, and keep pace with inflation after that. The bill has not advanced beyond the Ohio Senate Workforce and Higher Education Committee.

"Myself and Senator Thomas gave sponsor testimony on March 10 and it has not received another hearing," said Sen. Craig in an email. "We offered our bill as an amendment during the state budget process, but it was not accepted. We continue to fight for this important life-changing and uplifting legislation."

Michael Shields, a researcher for Policy Matters Ohio, has studied how raising the minimum wage would positively affect Ohio's overall economy of Ohio.

"I found in my most recent report that raising the minimum wage to $15 an hour by 2026 would inject about $4.9 billion into the Ohio economy every year." Shields said. "If we include tipped workers into that, so that everyone is paid the same fair minimum wage, that would add another $1.2 billion. So, $6.1 billion in benefits from raising the minimum wage and including all types of workers."

However, the National Federation of Independent Business (NFIB), Ohio's leading small business association, has found through surveys that a $15 minimum wage would:

  1. Increase prices by 23%
  2. Eliminate or reduce the hiring of entry-level or teenage labor by 17%.
  3. Decrease the work hours of current hourly employees by 14%.
  4. Eliminate or slow business expansion plans by 13%.

"Ohio entrepreneurs were decimated by the pandemic, many seeing revenue losses of 25% year-over-year, and some even over 50%," said Roger Gieger, NFIB executive director in Ohio, in a report about a survey of NFIB's members released in March.

"As we work our way back to a solid economic footing, a hike in the minimum wage would be an additional obstacle for small businesses to try and overcome. Fundamentally, small business owners believe that wages and benefits should be agreed upon by an employee and their employer, not a one-size-fits-all edict from Washington, D.C., or Columbus."

Shields counters small businesses will benefit in other ways if the minimum wage is raised.

"We also see other benefits, like reduced turnover, which reduces recruitment and training costs," he said. "We see improved morale and productivity as a result of that. Workers' ability to be effective at work can really improve from things like having more reliable transit, simply having the resources to cover basic needs, and making those more effective at work. So, there's a lot of benefits that businesses reap as well."

Research shows raising the minimum wage will also help narrow the gender and racial pay gaps. African Americans and Latinos make 10%-15% less than their white counterparts with the same job characteristics. Raising the hourly minimum wage to $15 an hour would add $3,500 annually to the income of a year-round worker. The majority of workers who would benefit from the raise are adult women, who make up 6 out of 10 (or 59%) of minimum-wage workers.

Tamra Barth said being paid a higher wage has definitely improved her quality of life. After leaving Pink Bandana in May 2021, she began working at Aldi's, which starts employees at $14 an hour.

"In my previous job, I guess you could say I always treated it as if it was my own bakery and small business," she said. "In doing that, I sacrificed things like breaks and overtime. Now, working for a larger corporation and being paid for every hour that I'm there — being given breaks, and the opportunity to grow instead of always settling for what it is — I think, as a human being, you automatically feel more valued."

Yet, despite the benefits, small Ohio business owners are concerned they won't be able to handle the major economic deviation that raising the minimum wage to $15 will bring.Barth's situation is an example of their pressing concern — larger corporations have the resources to pay their employees a higher wage. Small business owners insist if they have to compete, it could force them out of business.

At the Pink Bandana Bakery, owner Kathy Robinson believes larger organizations have an advantage over small businesses when it comes to wages.

"I think big companies, like Walmart for example — places that have huge, vast networks of employees and infrastructure — (raising the minimum wage) makes perfect sense," she said. "But small businesses like mine, depend on if people come. If people come and they buy, and if you retain your customers, you're in good shape."

Robinson goes on to explain how fragile small business finances can be, which was recently proven during the COVID-19 pandemic.

"When the COVID crisis hit, my whole goal was to obviously stay in business, but to keep all my employees employed," she said. "We struggled, but we made it work. The problem is, if I had to pay my very small staff of 6 people $15 an hour, I probably wouldn't be able to stay in business."

Another possible downside con of raising the minimum wage is that small businesses may resort to cutting their payroll or issuing cutbacks in order to afford to pay their employees more, resulting in fewer jobs.

"The increase in salary would have to be reflected in what I make for people," Robinson explained. "In my business and in many small businesses, you could price yourself out of the market. Why would somebody pay $100 for a small cake when they can get a small cake at a grocery store for $15?"

She added she wishes she could pay her workers a higher wage.

"It's not that I don't want to pay my people $15 an hour. I would love to be in a position where I can do that," she said. "I think that $15 is not even enough, to be honest, but it would be very difficult for a business like mine to stay in business without it totally impacting how I do business externally. We would have to make some very hard and tough decisions on how we would structure our employment situation in order to pay people that."

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