Last year, Floridians voted to raise the state’s minimum hourly wage from $8.65 to $10, with an additional $1 yearly increase through 2026. Florida’s minimum wage hike is designed to help low wage workers through boosting their hourly wages to keep pace with inflation and the rising cost of living. The law, which went into effect on September 30, leaves many Florida small businesses fearful that increased wages will hurt their bottom line.
However, decades of economic studies show that modest increases in the minimum wage do not hurt businesses or employment. In fact, raising the minimum wage has been shown to reduce labor turnover and stimulate the economy. Many states have already raised their minimum wages without negatively impacting small businesses.
In over a year full of curveballs, it’s understandable that Florida’s small business owners are concerned about yet another change. But based on a slew of academic research and the examples set by other states, Florida employers should feel confident that the minimum wage hike will not injure their business.
Studies show minimum wage increases reduce labor turnover and boost worker productivity.
Economic research indicates that raising the minimum wage results in less labor turnover. According to the Center for Economic Policy and Research, the strongest effect of a higher minimum wage on employment is “reduction in labor turnover, which yields significant cost savings to employers.”
In industries experiencing a labor shortage, mitigating labor upheaval is essential to staying operational. High worker turnover is costly to employers, both due to losses during the period when the business is understaffed and because hiring and training new employees is expensive and time-consuming. A minimum wage hike should help reduce worker turnover and mitigate hiring-related expenses–potentially covering some or all of the cost of increased wages.
At Fortuna, we specialize in aligning incentives between small businesses and employees to efficiently connect qualified candidates with open positions. While an increased minimum wage should reduce worker turnover for small businesses, Fortuna’s sophisticated matching process alleviates stress when labor turnover does occur.
Another bonus of Florida’s new $10 minimum wage: studies suggest that increasing minimum wage workers’ pay boosts productivity. According to the Peterson Institute for International Economics, numerous studies have found that “higher wages motivate employees to work harder” due to a higher cost of job loss and improved workforce morale. They also suggest that higher wages “enhance quality and customer service” and “reduce disciplinary problems and absenteeism.”
Together, reduced labor turnover and increased worker productivity will likely generate substantial savings for small businesses. These savings have the potential to offset the increased cost of wages.
Minimum wage increases also stimulate the economy.
Florida’s minimum wage hike also acts as an economic stimulus for the state’s economy. In addition to other pandemic-related setbacks, businesses are currently suffering from a lack of demand. Many customers have faced financial hardship during the past year and can no longer afford to spend as freely as before the pandemic.
Florida’s minimum wage increase puts money in workers’ pockets–money that they can then turn around and spend at businesses across the state. In particular, studies have shown that the first type of consumer spending to increase alongside wages is dining, which should come as a relief to struggling restaurants in Florida.
According to the Florida Policy Institute, 646,000 Floridians directly benefit from the recent pay increase. A study by the Federal Reserve Bank of Chicago estimates that if minimum wage workers receive a $1 hourly raise, 100% of their additional income would go back into the economy in the form of buying household necessities and other consumer goods. In other words, Florida’s economy can expect well over $1 billion in increased consumer spending over the next year thanks to the new $10 minimum wage.
History supports the claim that minimum wage increases boost the economy. It is common to raise the minimum wage during economic recession as a means to stimulate the economy; in fact, the federal minimum wage was first established during the Great Depression for this very reason.
Increasing demand through a minimum wage hike will give a huge boost to Florida’s economy. For small businesses in Florida, increased consumer spending on a local level should help offset the cost of paying higher wages.
The minimum wage hike does have a few potential downsides for employers.
Since Florida’s minimum wage increase is by state law, businesses have to comply whether they like it or not. While small business owners can’t change this fact, they can understand the potential downsides the minimum wage hike holds for their business and try to address them.
In order to maintain profitability, small businesses will need to find a way to compensate for the cost of increased wages. Cutting costs elsewhere–which should also occur naturally as a result of reduced labor turnover and increased worker productivity–is one method of doing so.
Another way to cover the increased cost of wages is by raising prices. Businesses may be understandably hesitant to take this approach, but fortunately, research indicates that prices do not have to increase by very much. Comprehensive economic studies conclude that a 10% increase in the minimum wage would raise food prices by 4% and prices on other goods by 0.4%. Considering the increased demand that will accompany the minimum wage increase, slightly higher prices likely will not be harmful to business.
Despite these potential downsides, Floridians can look to many other states for proof that raising the minimum wage is not catastrophic for small businesses.
Many states have already raised the minimum wage without harming small businesses.
The Sunshine State is not the first state to approve the move towards a $15 minimum wage (it’s the ninth, including D.C.), but it is the first state to approve this wage hike through a ballot measure. Florida voters passed the minimum wage increase in November 2020 with a supermajority, proving its popularity among the electorate.
21 states (including Washington D.C.) currently have an hourly minimum wage that is $10 or higher, and 25 states raised their minimum wage in 2021. Some states automatically raise their minimum wage along with inflation and the rising cost of living; a few states even have minimum wages higher than the cost of living would indicate. Economic data proves that these states’ economies have not suffered for it.
Many states have already significantly raised their minimum wage without harming their states’ small businesses or economy. These examples show that Floridians have nothing to fear from a minimum wage hike.
Conclusion
The benefits of a minimum wage hike to workers are obvious, and workers are rightfully enthusiastic about the raise. That being said, we should not overlook the benefits this policy also holds for small businesses and the economy. According to economic research, Florida’s minimum wage increase should help stabilize a turbulent labor market full of worker turnover. Moreover, since many workers will be making more money, the wage hike should boost Florida’s economy by increasing consumer spending.
The pandemic has thrown many curveballs at small business owners over the past year and a half. Luckily, the $10 minimum wage is not one to be worried about.
