How Do Small Businesses Pay for a Minimum Wage Increase?

The impact of changes in the minimum wage on employment is a politically charged topic that has been researched extensively. This paper analyzes what small business owners intend to do in the short term to pay for such an increase in labor costs. Since there are multiple ways a business can compensate for an increase in labor costs in lieu of adjusting labor levels, our survey asks the business owners to rank a list of possible funding sources by likelihood. Using a sample of 1294 privately-held US firms over the period of May 10, 2014 to May 15, 2014, we find that small businesses respond differently to minimum wage hikes than large businesses and that small businesses plan to pay for minimum wage hikes using the following methods, in the following order: 1) increase prices to customers, 2) reduce hours, 3) layoffs, 4) reduce other costs, 5) reduce profits to owners/investors