Looking for another sign of a strong economy? Nearly half of states in the U.S. just raised their minimum wage, and most small business owners reacted with a shrug. In the latest CNBC|SurveyMonkey Small Business Survey for the first quarter 2020, small business owners across the country report sustained optimism at the start of 2020, and only a minority report a negative business impact resulting from the increased minimum wages.
In fact, in this quarter’s survey, 57% of all small business owners say these minimum wage increases will have no impact at all on their business in 2020, indicating that they can absorb the cost of the wage increase, sustain any loss in profits and find ways to raise revenue to compensate for the increase on their balance sheets. Or perhaps many were always paying their workers above the minimum wage even before the change was made.
The risk of a wage increase is that it will be set too far above the hourly rate that employers can afford to pay their employees, forcing them to lay off workers if they can’t offset that cost in some other way. Small businesses typically have smaller profit margins and fewer ways to reallocate funds if their business model suddenly changes.
But with these wage increases coming at a time of near-record unemployment and steady national GDP growth — not to mention great confidence among small business owners, specifically — few small business owners are complaining about the wage boost. Perhaps more significantly, even those who expect a business impact thanks to the change only rarely say they will cut headcount as a result.
Just 8% of small business owners say they will be forced to lay off workers as a result of the higher minimum wage, while 14% say they will be forced to cut worker hours, 14% say the higher minimum wage will result in less revenue for their business and 22% say it will result in less profit for them.
State by state, results look the same
All told, 20 states raised their minimum wage on Jan. 1, while a 21st (New York) raised it on the last day of 2019 — another four, along with the District of Columbia, are set to raise their minimum wages later this year. The federal minimum wage stands at $7.25/hour, but each state is free to set their own floor at any level matching or exceeding the federal minimum.
The states implementing minimum wage increases in 2020 are a true cross-section of the country, representing every region and political leaning. Florida’s was the smallest dollar-value increase: a tiny 10-cent bump from $8.46 to $8.56. Washington state had the highest dollar-value increase — a $1.50 boost from $12 to $13.50 — tied with New Mexico’s increase from $7.50 to $9.
But overall, these numbers don’t indicate the sharp state-by-state contrasts that might be expected with state-level regulatory changes. Notably, small business owners in states with minimum wage increases are only slightly more likely than those in other states to say their business will be affected by a minimum wage increase in 2020. Six in 10 small business owners (60%) in states without minimum wage increases say they expect no impact to their business, because of changes to minimum wage laws in 2020, while 54% of those in states with minimum wage increases say the same.
The percentage of business owners who say they may be forced to cut workers or reduce hours are the same regardless of whether a small business owner is based in a state with or without a 2020 minimum wage increase.
One clear difference that shows up in the data is that small business owners who are based in states with minimum wage increases in 2020 are more likely than those based in other states to say the higher minimum wage will result in less revenue for their business (17% vs. 10%). But they are only slightly more likely to say it will result in less profit for their business (23% vs. 20%), indicating they can offset the cost in other ways.
Demand for workers continues to be high
In this quarter’s survey, as was true in the first quarter of 2019 and 2018, acquiring new customers and finding qualified employees are the top concerns plaguing small business owners nationwide. These are often two competing factors, as new customers are often best lured in with low prices while the best employees cost money to attract and retain.
Past CNBC/SurveyMonkey Small Business Survey results have shown that in a tight job market and a strong economy, small business owners are going to extreme lengths to attract and retain good workers. These latest results show that small business owners in states who’ve recently raised their minimum wage have the same expectations around headcount as those in other states, with 63% of small business owners overall expecting their staff to stay the same size, 32% expecting it to increase, and just 5% expecting it to decrease.
Similarly, small business owners are no more or less likely to have been unable to fill any open positions for the past three months depending on whether they live in a state that recently increased its minimum wage.
In the 12 straight quarters of the CNBC/SurveyMonkey Small Business Survey, small business owners have consistently pointed to hiring as one of their top challenges, but these data indicate that the minimum wage laws play very little role in that.
Though small businesses are competing with much bigger players in terms of profits and revenue, they’re also competing with them for employees, too. These minimum wage changes have little effect because most small business owners are already doing the most they can to attract and retain good workers.