Government employees may not be working, but the American economy certainly is. New employment numbers released on Thursday show that applications for unemployment benefits stand at 50 year lows. And while the economy may be slowing, the unemployment rate (3.9 percent) is only slightly higher than November’s 49-year low of 3.7 percent. Small businesses are driving a lot of this increase and credit work done on regulatory reform and the new tax plan with helping them thrive.
Their new concern is the prospect of a minimum wage hike.
“Contrary to what you’re hearing from talking heads and Democratic politicians, the U.S. economy is forging ahead just like it was before the partial shutdown,” says FreedomWorks President Adam Brandon. “The number of people seeking jobless benefits continues to fall and the Federal Register has grown by an almost insignificant amount.”
During Trump’s tenure, many federal departments, including the Environmental Protection Agency, the Department of the Interior, and the Department of Transportation, reformed internal policies to reduce regulatory compliance costs for businesses. According to FreedomWorks, these reforms have dramatically slowed the growth of the Federal Register.
“More Americans are employed than almost ever before and the size of the regulatory state has nearly ground to a halt. During the previous administration, the Federal Register, a proxy for regulatory growth, increased each week by an average of 1,658 pages. Compare this to the Trump Administration’s 65, along with the unparalleled economic growth and the impact speaks for itself,” Brandon continued.
Poll numbers show that small business owners are optimistic about the future of the economy, with a record 80 percent telling Gallup that their company’s financial situation is good. The government shutdown is making headlines, but members of the Job Creators Network (JCN), a nonpartisan network of small businesses, say that it has had little effect on them.
“When I look at two years ago, pre-Trump, there was no optimism,” said Joseph Semprevivo, CEO and president of Joseph’s Lite Cookies and a member of the JCN. “We were really concerned about would we be in business next year or not. We were so concerned with the regulatory and tax environment.”
These concerns are waning, instead being replaced by worries about what could happen when Congress comes back into session. Earlier this month, Sen. Bernie Sanders introduced legislation to raise the federal minimum wage to $15. The “Fight for Fifteen” has been a goal of unions and liberal organizations for some time, but opponents say that it could end up harming the workers it is intended to help.
“I employ lots of young people who are having their first job and building skills, a reputation for coming to work on time so that they can go on and get a reference and a new job,” says Susan Kochevar, owner of the 88 Drive-In Theatre in Commerce City, CO and another JCN member. She explained that wage increases have hidden additional costs for employers.
“My state in 2017 passed a minimum wage amendment, so the minimum wage goes up ninety cents for the next three years. This is a huge cost to small business. It sets a fixed expense of my biggest cost, payroll,” she said.
Colorado minimum wage currently stands at $11.10, but Kochevar says that the cost to her is higher than that. Since Social Security and Medicare taxes are calculated as a percentage of wages, raising the minimum wage also increases her tax burden. To cover this increased expense, she says that she has to look into ways to make her business run more efficiently, perhaps by getting rid of products that are labor intensive or by raising prices.
The fear is that a push for a national $15 minimum wage would be more than businesses like hers could support. For example, the average profit margin in the restaurant industry, which employs more than half of the minimum wage workers in America, is between 3 and 5 percent, with labor being one of the highest fixed costs these businesses face.
Bureau of Labor Statistics (BLS) data says that only 221,000 hourly paid workers age 25 or over earn the federal minimum wage, out of some 80 million total hourly workers. Increasing the federal minimum wage might help these workers, but even that is uncertain. One study by the University of Washington found that passing a $15 minimum wage law in Seattle actually reduced take home pay for workers, after businesses were forced to cut hours.
“The youngest workers will be hit hardest,” says Alfredo Ortiz, president and CEO of the Job Creators Network. “Doubling the minimum wage will make entry-level jobs more appealing to older workers looking to make a little extra money. With more experience, higher skills and maturity, they’ll be competing against younger candidates who’ll need more training and supervision.”
That leaves a grim situation for businesses like Kochevar’s movie theater, which rely on young, low-skilled labor to make their bottom line. They’re willing to hire, but will Congressional Democrats get in the way?