NFIB: Higher Minimum Wage will Hurt Small Businesses and Entry-Level Workers

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By Ellen Valentino
Director, National Federation of Independent Business/Maryland

Several lawmakers in Annapolis are seeking to raise the mandatory minimum wage by nearly 40 percent. They argue that a higher minimum wage will stimulate the economy by boosting pay for unskilled workers from $7.25 per hour to $10 per hour in 2013. The terrible irony in their proposal is that it will smother job creation and harm exactly the people it seeks to help.

People whose jobs disappeared in this recession and who are desperately looking for work know all too well that businesses are extremely reluctant to hire new workers. Their search is likely to get longer and harder with a steeper tax on employment.

Research shows that higher minimum wage requirements weaken the demand for new workers. Moreover, it makes entry-level jobs seem more attractive to unemployed workers with more experience. The result is that the poorest, youngest and least educated candidates get knocked off of the lowest rungs of the ladder in favor of people with better credentials.

Rather than close the income gap, as proponents insist, higher minimum wage requirements have had the opposite effect. They force employers to eliminate entry-level positions, shrinking the number of job opportunities for the people who need them most. And by blocking the door for unskilled workers, higher minimum wage laws make it harder for them to gain the experience they need to land better jobs in the future.

The effect on small businesses is just as damaging. Economists have speculated that many corporations are not hiring despite having made profits this year because they replaced laid-off workers with automation or technology. In other words, they invested in ways to eliminate the need for additional workers.

Small businesses operate on much smaller budgets. They rely more heavily on minimum-wage workers and a higher tax now would make it more difficult, if not impossible, for them to hire the people they need to expand.

In broader terms, Maryland would become immediately isolated and uncompetitive as a place to maintain or locate a small business in the region. The minimum wage in Delaware, Virginia, West Virginia, Pennsylvania and New Jersey is $7.25 per hour. In Washington, DC, the rate is $8.25 per hour. In fact, at $10 per hour Maryland’s minimum wage would be the highest on the East Coast. A higher tax on job creation here will encourage domestic businesses to flee the state and scare away new companies altogether.

A better way to create jobs for low-income residents would be to reduce business taxes to attract more investment. Indeed, governors in New York, New Jersey, Pennsylvania and elsewhere are busy doing just that. Raising the minimum wage may have a strong political appeal among certain constituencies, but it is bound to dampen job growth and opportunities for Maryland residents.

Ellen Valentino is the Maryland state Director for the National Federation of Independent Business (NFIB), which is the largest advocacy group for small businesses in the United States.
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