Minimum wage increase may be too much for some businesses

NOTE: after this column was published, the more moderate legislation was passed.

When you own a business, you have to pay your employees before you pay yourself, whether or not you have made any money. It’s the law.

You also have to pay your share of their Social Security, Medicare, and other required taxes, and workers’ comp insurance.

For a new small business owner, those requirements can be daunting. You’re taking on an obligation at the same time as you’re taking a risk. You have no guarantees of success.

When some business owners say an increase in the minimum wage threatens the very existence of their businesses, it’s true.

Most established businesses probably can afford it. They can choose to pass on cost increases to customers or reduce profits. But some, realistically, can’t. They would have to employ fewer people, eliminate employees altogether and use only their own labor, or close the shop.

The very smallest businesses, especially new ones, frequently are not sophisticated enough to lobby or advocate in their own behalf. We’re not hearing much advocacy for very small businesses as a vulnerable interest group with issues slightly different from other business groups.

Nonprofits are also struggling.  New Mexico has more than 300 nonprofit organizations, including many that contract with government to provide essential services. An estimated 63 percent of them are functioning at breakeven or using borrowed money. This is according to the annual report of New Mexico Thrives, a nonprofit advocacy organization.

Nonprofits have been forced to do more with less year after year. Reduced donations due to federal tax law changes are a factor. Nonprofits can’t just raise prices. T should hey have no elasticity except to keep cutting costs, which often means reducing their services.

This is not about whether workers deserve a living wage. Of course they do. But “deserve” is a difficult word to analyze. How do you measure what one person deserves at another person’s expense?

If you don’t have the money, it doesn’t matter whether the issue is increased cost of payroll or any other cost increase. The fact that it’s the right thing to do doesn’t mean you’re able to do it.

Today’s conventional wisdom says if you can’t afford the cost of owning a business, you shouldn’t be in business. I disagree vehemently. Everybody has to start somewhere, and many small businesses start out by borrowing from family or with credit cards. I think public policy should make it easier to get started in business and easier for small family businesses to stay in business.

The impact of mandatory wage increases may be greater in small towns than larger cities. Matthew Gonzales of the Farm and Livestock Bureau, who lives in Cimmaron, says the town’s only grocery store closed last year. He said a new owner is hesitating before taking the plunge to reopen, waiting to find out whether he’ll be able to afford employees.

Gonzales said 70 percent of New Mexico incorporated municipalities have a population under 3500. Seven New Mexico counties have total populations under 5000: Hidalgo, Mora, Guadalupe, Union, Catron, De Baca, Harding.  We’re losing rural population, and those little towns may be barely hanging on.

As a minimum wage bill (HB 31, Miguel Garcia, D-Albuquerque) works its way through the legislature, we may want to consider what we stand to lose, including some critical nonprofit services and a little more of New Mexico’s small-town and rural heritage. Though I am wary of making legislation more complex or confusing, I suggest these concerns call for inserting some exemptions.

A more modest minimum wage bill (SB437, Clemente Sanchez, D-Cibola) has not moved much past introduction.

If HB31 is the one that passes, legislators should consider carefully drafted exemptions for very small family businesses, nonprofits that serve disadvantaged populations, and businesses in economically disadvantaged counties. That’s my best shot at a solution.

Triple Spaced Again, © New Mexico News Services 2019

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