A new study shows how a rising minimum wage hurts little companie

See WSJ editorial.

"Here’s another volley in the debate over the “Fight for $15”: As the federal minimum wage rose from 1989-2013, small businesses in affected states suffered “lower bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate.”

That’s according to a study last week from the National Bureau of Economic Research. The analysis by three professors at the Georgia Institute of Technology exploits the fact that many states—now more than half—set their own minimum wages higher than the federal standard. This provides a natural control group. When the nationwide minimum goes up, how do the states where it applies fare in comparison?

Start with data on one million loans, averaging around $100,000, made through the Small Business Administration. For each $1 increase in the minimum wage, the authors estimate that loan amounts dropped 9% more in the affected states. The risk of default was 12% higher. The average credit score for small companies in those states showed “a sharp decline.” Business entries fell 4% in the year the minimum wage went up. A year later, business exits rose 5%.

These results, the authors say, hold throughout various statistical analyses, such as while controlling for local economic conditions. The effects are stronger in businesses like restaurants and retail, which rely on low-skilled labor. Smaller and younger companies are more severely affected as well. In short, the authors conclude: “We find that increases in the federal minimum wage worsen the financial health of small businesses in the affected states.”

By now some readers are probably thinking: Well, duh. It does not take a University of Chicago Ph.D. to suspect that raising the price of labor will make it harder to sustain a small, labor-intensive business. Don’t forget that there’s no cost-of-living adjustment: A $15-an-hour federal minimum wage would apply equally to a French bistro in Manhattan and a pizza joint outside Manhattan, Kan.

Many progressives still insist this is a free lunch, and most of the Democratic presidential candidates support raising the federal minimum wage to $15. That includes the so-called moderates, like Amy Klobuchar and Mike Bloomberg. They ignore the millions of small businesses that are trying to make payroll and grow.

The churn of companies with fewer than 10 employees, this study says, accounts for “more than 70% of job gains and losses in 2018.” No matter what politicians say, inhibiting that dynamism hurts the smallest businesses and the least-skilled workers the most."