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Poor Sales, Not High Wages, Worry Small Businesses

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Written by Eric Hoyt   
Tuesday, 10 July 2012 13:30

Lawmakers at the federal and state level are talking seriously about increasing the minimum wage.  Business interests have been vocal in their opposition.  In a May 17 press release, for example, the National Federation of Independent Businesses (NFIB), an organization that often acts as a front for larger corporate interests, stated: “[The] NFIB is strongly opposed to raising the minimum wage, especially in the midst of an unemployment crisis. Small business owners warn that . . . there’s no way for them to absorb higher mandatory wages without cutting jobs.”  Even a brief analysis of the NFIB’s own survey reveals a very different picture.

While the NFIB warns that minimum wage increases would create serious cost problems for small businesses, few of their members list "labor costs" as their "most important problem."  Instead, what we see from the NFIB survey results is that the percentage of small businesses listing labor costs as their most important problem has hovered consistently between 3% and 5% since the beginning of the recession in December 2007.  In the most recent data, the percentage fell to 2%, its lowest level since the start of the recession. 

As the following figure shows, while exhibiting expected small random fluctuations, the percentage of firms reporting labor costs as their major concern has shown no upward trend, despite minimum wage hikes both in July 2008 and July 2009.  While we do see a slight spike to 6% of firms in June 2009, perhaps reflecting increased attention and media hype over the approaching minimum wage hike, the share of firms citing labor costs as their most serious problem abruptly fell back to 3% in July when the policy was actually enacted.

most-important-problem-fig-1-7-2012

Instead of wages, the NFIB survey results suggest that “poor sales” have been — far and away — the biggest concern of small businesses: 

most-important-problem-fig-2-7-2012

At the onset of the recession in December 2007 about 9% of firms said that poor sales were their most serious problem. By 2009 and 2010, the share citing poor sales was as high as 34%. In the most recent data, about 21% of all firms still list poor sales as their biggest challenge. The real problem facing firms is not that their low-wage workers earn too much, it is apparently that their customers earn too little.

Tags: businesses | economy | jobs | labor market | minimum wage | recession

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