How Will a Higher Minimum Wage Affect Retailers?

On April 4, the governors of California and New York voted to approve new legislation that will increase the states’ minimum wages over the next six years. Both states will gradually raise the minimum wage rates to $15 an hour by 2022.

The minimum wage in New York is currently $9.00, equating to just under $19,000 a year. The minimum wage in California will go up from $10 an hour to $15 an hour, resulting in the salaries of full-time minimum wage workers to increase from $20,000 to $30,000 annually.

At the beginning of the year, 1,000 business executives were surveyed by LuntzGlobal, a research firm ran by political consultant Frank Luntz. Eighty percent of those surveyed said they support a minimum wage increase, with only 8 percent oppose raising minimum wages.

An increase in wages is one step towards closing the divide between America’s rich and poor, but politics aside, how will retailers be affected by this change?

Reduce Employees or Raise Prices?
Critics of the minimum wage increase say higher wages will force retailers into a tough spot — either downsizing staff or raising prices on products. It might be difficult to increase employee wages, especially for small business owners still trying to get their feet on the ground. The subsequent move might be to increase the prices of the products they sell in order to recoup the money spent on higher employee wages.

Can an increase in pricing at one level affect all others? Some believe that raising the minimum wage will lead to price inflation on all products, thereby increasing the cost of living for all, negating the impact of minimum wage increases for workers.

Make More to Spend More
If Americans are earning more money, does that mean they'll start spending more money? Retailers are hoping so.

Minimum wage increases means retailers will have to spend more on employees, but that might be a long-term benefit if it leads to increased spending on goods.

Employee Turnover
Does higher compensation lead to happier employees? If employees have more financial freedom, they're less likely to search for new jobs. This will save retailers money on new employees and training — and in theory, the longer a person spends at their job, the better their performance will be.

It costs about 15 percent of an annual salary to replace a worker in a low-paid position. For a position being paid $30,000 a year, the employer has to spend $4,500 every time a new worker is added. That number only increases as you climb the corporate ladder.

Raising the minimum wage has the potential to keep employees happy and working longer for your company. It’s hard to predict what the exact effects of an increased minimum wage will be on retailers, but we can watch and learn from what happens in California and New York.