Congress has recently considered raising the federal minimum wage from $7.25 per hour to $10.10 per hour. As this increase is debated across the county, there’s one constituency that will be affected by this legislation whose views have been largely unknown: small businesses and independent professionals. We decided to fix that. More than 400,000 small, professional services businesses and independent professionals have used Thumbtack to find new work, and we periodically survey these businesses about various issues. Last week we surveyed about 16,000 of these businesses about the push to raise the minimum wage and received 8,585 responses.
A quick note on the sample before we dive into the results – Thumbtack’s network of service providers tends to skew towards the professional services and away from brick and mortar retail businesses. So please keep in mind that these are largely professional services businesses who tend to – but don’t always – pay a higher wage than many retail businesses. Scroll to the bottom for full notes on the survey methodology and representativeness of the sample.
Small businesses are closely following the minimum wage debate
A surprising number of small businesses are following this discussion – of the 8,585 small businesses and independent professionals who replied to the survey, 58% said they are following efforts to raise the minimum wage. And a full 80% of businesses surveyed knew what the current minimum wage is in their state, even those that didn’t employ anyone other than themselves.
Many business owners had strong views about this issue both as entrepreneurs and as individuals. One D.J. from Michigan said “There has been a long-standing need to pay a prevailing wage for several years,” while a caterer in California said, “It’s about time to bring America back.” On the other end of the spectrum, a cleaner in Texas said that the “government should stay out of telling business what to do!”
Surprisingly, most small businesses say that increasing the minimum wage would have no effect on their hiring or firing decisions
We asked businesses what effect they think an increase in the minimum wage would have on their business, on their customers, on their employees, and on the local economy where they operate, and we asked how it would affect hiring and firing decisions. We were very surprised at the level of ambivalence that the vast majority of Thumbtack’s small business professionals felt about the impact of increasing the minimum wage. For example: a large majority of respondents said that an increase in the minimum wage would have no effect on their business, their customers, or their employees. This was true for both small businesses with employees and ones without. When asked if increasing the federal minimum wage to $10.10/hour would make them more or less likely to either hire more employees or let go of existing employees, an overwhelming majority of Thumbtack pros said it would have no effect on their hiring or firing decisions.
Of the 8,584 respondents to the question posed above, 3,551 reported they had employees (the remaining 5,033 said they worked alone). Although 24 percent of employers said they would be less likely to hire new employees if the federal minimum wage were raised to $10.10, 71 percent said it would have no impact on their staffing decisions. Among non-employers, 17 percent said they would be less likely to hire any employees if the federal minimum wage were raised to $10.10. And there certainly would be an impact on existing employees: 8 percent of employers said that increasing the minimum wage to $10.10 would make them more likely to take the even more drastic step of letting go of existing employees. One CPR trainer from California who does not have any employees currently said that he “definitely could not afford to hire someone at $10.10 per hour.” A tennis instructor from Arizona predicted, “raising the minimum wage is a terrible idea: all it would do is make everyone either fire some employees or raise the prices of their products or both.” But a web designer from Idaho said, “In general I think it would be a wash… I would be forced to pay my employees more but would pass that cost on to customers.”
The vast majority of businesses in the survey already pay well above the minimum wage
Before administering this survey, we assumed that most businesses would say that increasing the minimum wage would hurt them. But instead we found that most businesses believe that such an increase would have no effect on them. Where did we go wrong? Well, it turns out that the vast majority of respondents already pay their employees above both the existing federal minimum wage and the proposed higher wage. The owner of an audio recording studio in Pennsylvania expressed a common sentiment when she said, “I have never paid minimum wages to any of my employees. So, increasing the minimum wage would have no effect on my business.” Of the 3,551 employers who replied to the survey, 67% (2,377) estimated that they already paid their employees more than $10.10 an hour, and half (1,791) estimated that they paid their employees more than $12 an hour. A wedding planner in Washington State said “In my state, we have the highest minimum wage in the country. I myself ALWAYS pay my contracted labor more than that – you get what you pay for. I want happy employees who LIKE working for me and do a good job.” This is not surprising given the mix of businesses covered by the Thumbtack survey – these are largely professional services business, which, according to the Bureau of Labor Statistics, have an average hourly wage nationwide of $28.93. In Thumbtack’s 2013 Survey of Small Business Friendliness, we found that 75 percent of respondents were in the professional and non-professional service sector. The effects of a minimum wage increase are likely to be felt more acutely in the relatively lower-wage retail and hospitality sectors, where average wages are $16.81 and $13.76 per hour, respectively.
The hardest-hit group of businesses would be those that pay their employees above the current minimum wage but below the proposed future minimum wage
What about the 714 businesses that responded who currently pay their employees somewhere between the current minimum wage of $7.25 an hour and the proposed increased wage of $10.10 an hour? This is the group that would be most affected by mandating a higher minimum wage – and it shows in their responses. This group was far more likely than others to say that increasing the minimum wage to $10.10 an hour would have a negative effect on their customers, their employees, and their businesses – 48 percent predicted a negative effect on their business, 10 percentage points higher than the overall percentage of professionals in all wage ranges who said that.
A garage door installer in Indiana who falls into this group explained “Unfortunately paying someone who doesn’t actually help bring in business makes it harder to hire. We pay a training wage then when they can show they can handle the scope of work we give them a better wage.” Even so, a full 45 percent of these employers said raising the minimum wage would have no impact on their business while 44 percent said it would have no impact on their employees.
A plurality of small businesses believe that an increase in the minimum wage would have a positive effect on the local economy where they operate
The question that Thumbtack’s service pros were least ambivalent about was how an increase in the minimum wage would affect their local economy – this question elicited the strongest response from employers and non-employers alike. In contrast to the muted predictions they made for their businesses, customers, and employees, a full 35% of respondents said that the increase would have a positive effect on the local economy; 34% said it would have no effect and only 28% said it would have a negative effect – this was the highest percentage responding both positively and negatively in the entire survey, and the lowest percentage saying it would have no effect. Even though a piano teacher from Utah said, “I think it will make the economy worse by increasing costs for many businesses, especially when the economy is already struggling,” the positive sentiment felt by more than 1/3 of respondents was summed up nicely by a carpenter in Colorado, who said, “I think it will benefit the economy, because it will give people a livable wage and an incentive to progress and get more.” Employers were slightly less enthusiastic about the effect of the wage increase on the local economy – only 29 percent said it would have a positive effect while 34 percent said it would have a negative effect. When broken out by wage range, moderate wage employers were far more likely to say increasing the minimum wage to $10.10 would have a negative effect on the local economy – 45 percent of employers paying between $7.25 and $10.09 said raising the minimum wage would hurt the economy: That said, even 52 percent of the moderate-wage employers and 62 percent of all employers said increasing the minimum wage would have a neutral or positive effect on the local economy, and in none of the four categories we asked about did a majority of these businesses say the effect would be negative.
We were surprised at how many businesses felt neutral or positive about a proposed increase in the minimum wage – geographic variation may be part of the story
One reason for the muted response to the proposed $10.10 minimum wage may be due to differences in cost of living across the country. It would be expected that different employers in different parts of the country might feel differently about this issue. As others have pointed out, employers in Laramie, Wyoming will likely feel differently about paying an employee $10.10 an hour than small businesses in New York City might. To test this, we divided the country up into three sectors: high-cost, medium-cost, and low-cost, using a cost of living index that shows variation in costs of living by county. What we found was not surprising – small businesses in low-cost states were significantly more likely to say an increase in the minimum wage would harm their customers, their businesses, their employees, and the local economy than small businesses in high-cost states where the average wage is already closer to $10.10.
What was surprising was that even in low cost states a majority of small businesses predicted no impact on their customers, businesses, or employees from an increase in the minimum wage to $10.10 an hour: What can we conclude from this survey? First, America’s small businesses do not speak with the same voice on this issue. Businesses in different geographies, employers vs non-employers, average wage paid to employees… these businesses all think differently about a higher minimum wage because an increase would affect all of them differently. Second, we were surprised at how few businesses feel negatively about a proposed increase in the minimum wage. 79% of businesses feel that an increase wouldn’t affect or would have a positive effect on their businesses, 83% of employers believe that an increase would have no effect or a positive impact on their employees, and 69% of all small businesses believe that an increase would have no effect or a positive effect on their local economy. In some ways this underscores the “efficiency wage” theory of economics: it is clear that many small business employers feel strongly about paying higher wages in order to attract high quality workers. Finally, there are certain businesses that would suffer disproportionately from an increase in the minimum wage. Of all businesses surveyed, those who are the most negative on the proposed increase are employers – particularly those who currently pay their employees below the newly proposed minimum wage of $10.10 per hour. But even in this group a majority (52%) report the increase would have no effect or a positive effect on their business. We’d love to hear your thoughts about this survey and anything else you think we could investigate with large-scale surveys of small businesses. We are open to feedback and taking suggestions!
Between March 17 and March 26, 2014, we asked about 16,000 businesses registered on Thumbtack – about 4% of the total number of businesses registered on Thumbtack – to complete a survey about their views on the proposed increase in the federal minimum wage. We received 8,585 complete responses to the survey. You can view the full survey here.
Representativeness of Survey Sample
The sample of businesses responsive to our surveys is strikingly representative of businesses nationally along numerous metrics. For example, the respondents to our surveys parallel closely the geographic density, the racial and ethnic makeup, the age, and the size of small businesses in the country as reported by the US Census Bureau. The sample is, however, under-representative of the retail, wholesale, and manufacturing sectors and over-representative of the professional and nonprofessional services sectors. For more information about the representativeness of our survey samples, please see pages 3 and 4 of the 2013 Thumbtack.com Small Business Friendliness Survey: Methodology and Analysis.