A National Bureau of Economic Research-sponsored Georgia Institute of Technology study by Sudheer Chava, Alexander Oettl, and Manpreet Singh tells a tale.
For each $1 increase in the minimum wage, the authors estimate that loan amounts dropped 9% more in the affected states. The risk of default was 12% higher. The average credit score for small companies in those states showed “a sharp decline.” Business entries fell 4% in the year the minimum wage went up. A year later, business exits rose 5%.
These results, the authors say, hold throughout various statistical analyses, such as while controlling for local economic conditions. The effects are stronger in businesses like restaurants and retail, which rely on low-skilled labor. Smaller and younger companies are more severely affected as well. In short, the authors conclude: “We find that increases in the federal minimum wage worsen the financial health of small businesses in the affected states.”
It’s not only the loss of jobs and harder-to-get loans, though; a minimum wage increase has more broadly reaching outcomes.
It’s also the loss of job opportunity, the loss of entry-level experience as a necessary item for moving up, the loss of spending money and/or a taste of college money for teenagers.
It’s the loss of a second income for a family that needs—or just wants the flexibility of—a second income.
It’s an increase of welfare cost to Federal and State governments as those additional unemployables—now due to Government mandate—are driven out of the labor force and into the welfare force.
But, hey—future votes to be harvested from that last bit’s crop planting.
The study can be seen here (paywall for the whole article; the abstract is freely available).