REPOST ARTICLE SOURCE: http://smallbusiness.chron.com/economic-effects-minimum-wage-2690.html
Boston University defines minimum wage as, “the lowest level of earnings for employees set by government legislation.” In general there are two fiscal and social arguments on the minimum wage. Supply side economists see a minimum wage as a overreaching burden placed on small businesses while demand side economists argue wages set too low will result in higher levels of poverty.
Small Business Employment
The minimum wage directly affects small businesses because a large amount of their earnings go directly to pay for operating expenses, such as equipment, supplies, lease or mortgage, credit lines, inventory, and employee wages and benefits. The single largest cost to small businesses are the latter; employee wages and benefits and are also one of the few costs that can be controlled. However, if a higher minimum wage is enacted, they must hire fewer employees or downsize to comply with the minimum wage law, which has a direct impact on unemployment rates.
Research conducted by the Heritage Foundation in 2003 found that raising the minimum wage would not curtail poverty levels because of the percentage of people employed full-time earning minimum wage, and “review of the Census data indicates that fewer than one-quarter of those affected by the proposed new minimum wage work full time.” This means 75 percent of minimum wage earners are part-time employees and do not rely on their income to sustain current or higher living standards, which translates to a slight increase in consumer spending but does not positively impact poverty levels.
Labor is a commodity and therefore is subjected to market forces. If the minimum wage is increased by the government, more skilled and educated workers will also seek pay increases as persons that are unskilled and not as educated are awarded a higher wage not because of market forces, but government policy. This increases volatility in the labor markets as experienced and skilled workers are forced to reassess their value upward, which may not be accepted by employers.