How Raising Minimum Wages Hurts U.S. Employers

by George N. Root III

As of publication, the federal minimum wage was $7.25 per hour. Each state can enact its own minimum wage laws that will supersede the federal minimum wage, but only if the state's minimum wage is higher than the federal. A rise in the federal minimum wage can cause problems for American employers that can lead to layoffs, budget cuts and other financial changes.

Labor Costs

An employer who has 20 employees making minimum wage will see a $10,000 annual increase in wage costs for every 25 cents the minimum pay is raised, according to the Employment Policies Institute. According to the U.S. Chamber of Commerce website, small businesses are least able to absorb the thousands of dollars in additional labor costs that a minimum wage increase creates. Some solutions that small businesses can employ include reducing staff or cutting costs in other areas such as marketing.


The effects of the minimum wage on company bottom lines can cause a rise in consumer prices, according to the Balanced Politics website. The company profit margin is a financial indicator that is reported to share holders and used to determine the financial health of an organization. If small businesses are faced with an increase in the minimum wage, they will need to find a way to absorb those extra costs and preserve their profit margins by raising prices to the customers.

Non-Profit Organizations

Nonprofit organizations use volunteers and employees to offer their services. According to the U.S. Department of Labor website, the Fair Labor Standards Act mandates that employees of nonprofit organizations are subject to minimum wage laws. A rise in the minimum wage can force nonprofits to spend more for labor to maintain the current level of services.

International Competition

An increase in the U.S. minimum wage will force American small businesses to raise their prices on the international market. When foreign labor is less expensive than U.S. labor, it is difficult for small businesses to compete with international companies that import products into the United States. For example, the minimum wage in India as of 2009, when translated into American dollars, was approximately $2 per day, according to the Global March website. An average American minimum wage worker getting paid $7.25 per hour makes $58 per day for an eight-hour workday. As the minimum wage in the United States goes up, it becomes even more difficult to compete with foreign manufacturers.

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