Commentary: Minimum wage hike would crush many Delaware small businesses

On Wednesday of next week, the Delaware General Assembly will hold a hearing on a bill to increase the minimum wage to $15 per hour, initially bumping it up to $11 in January, and then a dollar more each year. Keep in mind, the state’s minimum wage is already set to increase to $9.25 on Oct. 1 of this year.

This will have a huge impact on small businesses, especially those in the hospitality sector, such as lodging, food service, and amusements, that hire many entry-level or teen workers. Many seasonal businesses along our beaches would be devastated by such a policy.

Not only will Delaware feel the economic impact, but it will also result in many jobs being eliminated. That means workers at the lower end of the pay scale, those the bill may be intended to help, will be hurt instead when they get no paycheck at all—because their jobs disappear, or their hours are reduced.

Mike O’Halloran

This new proposal would increase the current minimum wage, which just rose last fall, by 77% in just three and a half years. For small businesses that plan their costs over time, that is a massive hike. Not only would those business owners have to raise wages of those who make the minimum, but also those who make a bit more out of fairness, to keep up morale, and productivity.

It doesn’t help much that Delaware currently has a training wage when a minimum wage is $15 per hour, because that training wage can be no more than 50 cents less and only last three months. It doesn’t help those who hire teens (think beach businesses) because the teen wage must also be no more than 50 cents below the minimum.

One way to understand what a small business owner faces if this $15 wage bill passes, is to consider their choices. There are fixed business costs like rent, insurance, and supplies. Smaller businesses such as retail shops, restaurants, or games and rides, have a very low-profit margin—likely about 2%. One option is to raise prices, but will families pay more when it’s not a required purchase? If not, the only way to cover the increased labor costs is to cut out some of the labor and cut hours. Existing employees will have to do more.

This ill-advised policy also prevents small business growth, reduces the tax dollars going to the state, and discourages entrepreneurship. It makes it harder for anyone seeking a job for the first time from ever finding one.

If an employer can afford the technology to replace that worker and pay it off in a year or two (like a kiosk that takes orders), that might be a good business decision. Keep in mind that every time the minimum wage goes up employers pay not just higher wages, but more in payroll costs, workers’ comp insurance and benefits.

Others may simply throw in the towel because small business owners work very long hard hours, they take personal risks, and most aren’t raking in big salaries as you might assume. There is a tipping point where it’s just not worth the effort. These are the unintended consequences of a $15 minimum wage.

EDITOR’S NOTE: Mike O’Halloran is state director of National Federation of Independent Business in Delaware, an association that represents hundreds of small businesses in the state.

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