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Matthew Yglesias On How A Minimum Wage Hike Would Impact Franchising

According to the cofounder and economic pundit, small business owners often think about minimum wage hikes the wrong way.

By Alex Lockie1851 Franchise Editor
Updated 2:14PM 03/11/21

Congress passed a $1.9 trillion COVID-19 relief bill on Thursday that is likely to impact virtually every business in the U.S. Notably absent from the bill, however, was the minimum wage hike that progressives and labor activists have been fighting for. 

But as economic pundit and "One Billion Americans" author Matthew Yglesias points out, the Fight for $15 movement is not going away, and the franchising industry should be prepared to face legislation that would require an increase in the minimum wage sooner rather than later.

In franchising, where small businesses frequently employ teenagers to work part-time hours, minimum wage is often the standard rate for store-level employees. In many states, minimum wage is as low as $7.25 per hour, meaning a $15 minimum wage would double the hourly wages of a large swath of the industry’s workforce.

In an interview with 1851 Franchise, Yglesias said the disruption could have unexpected consequences for the industry, particularly in the food service segment. 

“A large increase in the minimum wage is a big deal for the food service industry,” said Yglesias. “Small business owners think about it personally: ‘What if I had to double how much I pay my entry level staff? That would be disastrous,’ but if you look at the data, the reason why businesses tend to ride out minimum wage hikes just fine is because everyone has to increase pay, not just you individually.”

With that point, Yglesias touches on just what makes the minimum wage debate so incalculable. A massive change in wages would increase costs for labor-dependent franchises, but it would also mean more people have more money to spend. Typically, economists agree there will be winners and losers from a rising wage. But as Yglesais notes, many of the winners would be low-income families, and for that reason, public momentum on this issue isn’t going anywhere. 

“Fundamentally, the electorate believes that full-time workers should not be living in poverty,” said Yglesias. “Increasing the minimum wage polls extremely well. All the Democrats are for a minimum wage increase, and several Republicans have already come to the table with ideas that involve a wage increase. Trying to connect that to the COVID-19 relief bill freight train didn’t work. Politically, Congress still needs to hash out some disagreement among themselves, but there are clearly over 50 senators who think that $7.25 is too low.”

With the minimum wage issue narrowly excluded from the debate over the $1.9 trillion COVID-19 relief bill, Yglesias said he expects the legislative battle to come up again, probably before the midterm elections. 1851 Franchise will continue to look at the ways this will impact franchise businesses.