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The Double-Edged Sword of Minimum Wage Hikes: Small Businesses Suffer


BOSTON – Tom Knapp has always loved cars. 

"It was a passion of mine in high school. I went to automotive college for it," he told CBN News.

After earning his degree in automotive management, Knapp ran a shop for three years before buying it from his former boss and starting T&J Motorworks. 

"I worked at a dealership when I was right out of high school and I didn't like it, so I knew a private shop was the only way to do it," he explained. 

As a small business owner, Knapp knew he would face some challenge; like changing technology. 

"You can't advertise in the newspaper and radio ads are disgustingly expensive for a small business so you've got to learn how to get yourself out there in other ways and social media is the newest thing," Knapp said.

What he didn't expect was "The Grand Bargain," a new Massachusetts law, requiring an increase in the state minimum wage. This year employers must pay $12 an hour. That will gradually increase over the four years until it reaches $15 an hour. 

Small Business at Risk

"I was trying to have more employees. The issue is: to hire a C-level technician you can't afford to pay them that much money. That's grossly overpaid for the job that they do – oil changes and simple things like that. The same with an office manager. I can't hire someone to answer phones for that amount of money. It would put me out of business." Knapp said.

Two jobs now likely lost and the dream of expansion put on hold.

Other employers in Massachusetts worry it will mean layoffs or worse. Durgin Park, a Boston restaurant since 1827 when John Quincy Adams was president, closed at the beginning of the year.

The owner cited the minimum wage increase as one of the main reasons. 

House of Representatives Considers "Raise the Wage Act"

Massachusetts didn't start this trend. First came Seattle, then California, New York, Washington DC, and now Democrats in Congress want a national $15 minimum wage.

"We now have an opportunity – and a responsibility – to restore the value of the minimum wage, lift millions of hardworking people out of poverty, and boost the economy in Main Street America," Rep. Bobby Scott (D-VA), said during mark-up of the Raise the Wage Act. 

Republicans call the idea of raising the minimum wage a radical idea from the far left.

Unintended Consequences of Raising Minimum Wage

"They don't know what's happening in the economy right now. They're obviously detached. Unemployment is at its lowest level in 49 years, wages are up, the economy is booming. Everywhere that I go in my district people are saying what we need are more skilled workers. We have 7.3 million jobs unfilled in this country," said Rep. Virginia Foxx (R-NC). 

"Some of my colleagues are eager to warn of the so-called consequences of gradually raising the minimum wage
to $15," Rep. Scott said. 

"But they ignore the consequences of inaction over the last 10 years. If Congress fails to raise the federal minimum wage by mid-June, it will be the longest period of time without an increase since the federal minimum
wage was created 80 years ago," he continued. 

Scott says the increase would simply provide someone the basic essentials of living in the U.S. but Foxx points out that only 2.3 percent of American workers make minimum wage.

Minimum Wage Jobs are "Launching Pads," Not Careers

"Minimum wage jobs are launching pads to go into other jobs that will pay a lot more. I doubt very many of us who are now working didn't start out at minimum wage, but the idea isn't to stay at minimum wage your whole life, but to move up," Foxx told CBN News. 

The Raise the Wage Act is expected to eventually pass the House, but will likely hit a road-block in the Republican-held Senate. While that may stop a national minimum wage hike, employers in states like Massachusetts must grapple with the consequences. 

"I'm hoping that the volume eventually increases and I can just put it off for a little while longer. But honestly, it's probably a situation where I'll have to continue working in the business and continue doing the jobs myself," said Knapp.

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