Small Business Job Growth Faster In States With Minimum Wages Higher Than $5.15

Findings Contradict Stories Told By Minimum Wage Opponents

Keystone Research Center Releases Revised Fact Sheet on Effects of Raising Pennsylvania’s Minimum Wage

Harrisburg, PA – The Albany, New York, based Fiscal Policy Institute (FPI www.fiscalpolicy.org) today released a new study demonstrating that job growth among small businesses was faster in recent years in states with a minimum wage higher than $5.15 per hour.

The Keystone Research Center (KRC www.keystoneresearch.org) co-released the new FPI study in Pennsylvania along with a revised Fact Sheet summarizing findings from recent KRC studies on the effects of raising the state’s minimum wage, a measure still being considered by the General Assembly.

“FPI’s new evidence shows that a higher minimum wage not only benefits workers but can spur economic growth that benefits small business owners” said KRC labor economist Mark Price. “Increases in labor costs are offset by savings from lower recruitment and training costs and by greater revenue from increased sales.”

“Low-wage workers are also consumers,” added Price.  “It’s just common sense: when these workers have more take-home pay it leads to spending that trickles up to benefit many small, locally-owned businesses.”  

The FPI study found that in states with a minimum wage higher than the current federal minimum wage of $5.15 per hour, employment in small businesses increased by 6.7% between 1998 and 2003, compared to 5.3% in states with a minimum wage of $5.15.

“Even among small retail businesses, employment grew by 4.1% in the 10 states with a higher minimum wage compared to just 2.6% in the rest of the states” said economist Stephen Herzenberg.

“FPI’s findings contradict the stories circulated by minimum wage opponents that a higher minimum wage is bad for small business.  Predictions of doom for small businesses are not rooted in reality.” 

Other key findings of the study:

• The number of small businesses (with less than 50 employees) increased by 5.4% in the 10 states with a higher minimum wage throughout the 1998 to 2003 period, compared to a 4.2% increase in the 40 states with a minimum of $5.15.

• The number of small retail businesses increased slightly in the 10 higher minimum wage states while decreasing in the other 40 states. 

• Total payroll in small businesses grew by just 21% in states where the federal minimum of $5.15 prevails; in contrast, payrolls in higher minimum wage states grew by nearly 25%.

• Payrolls in small retail businesses grew by nearly 20% in higher minimum wage states and by just under 17% in the rest of the states.

The full FPI study is available from the Fiscal Policy Institute Web site at www.fiscalpolicy.org.

The new KRC Fact Sheet on the minimum wage can be accessed via the KRC web page at www.keystoneresearch.org.  The Fact Sheet summarizes key findings from six releases on the minimum wage:

• Estimates of the number of Pennsylvania workers who would benefit from a minimum wage increase.
• Estimates by county of the number and share of Pennsylvania workers who would benefit from a minimum wage increase.
• A comparison of the benefits of raising the minimum wage to $7.15 with those from raising it to $6.25.
• A study showing that, in the absence of minimum wage increases, many Pennsylvania low earners are stuck at the bottom of the job market
• Data showing the income inequality has risen even more in Pennsylvania than most states, underscoring the need to increase wages at the low end of the job market.
• KRC’s State of Pennsylvania 2005 showing that low-wage Pennsylvania earners made less in 2004 than in 1979.