Small businesses brace for minimum wage hike after ‘most difficult year’

Small businesses can’t afford another year like 2020.

Surveys show that small businesses in some hard-hit sectors failed last year at nearly twice the normal rate because of the COVID-19 pandemic and shutdowns. More than 110,000 restaurants nationwide had closed permanently by December.

Major retailers also endured a devastating year, with closings or severe downsizings hitting chains such Pier I Imports, Lord & Taylor, Stein Mart and GameStop of manipulated-stock fame. More than 10 million workers who lost their jobs last year still haven’t found work.

The latest survey by the U.S. Chamber of Commerce shows that most of the nation’s 31 million small-business owners, 62%, believe the worst is yet to come. About three-fourths of small-business owners say they will need more help from the government to survive this year.

The past year has been the worst for small businesses in three decades, said Maggie Horne, director of the Small Business Development Center at Gannon University in Erie, Pennsylvania. She said the problems include inconsistent lockdown rules from state to state and the slowness of some business owners to move parts of their operations online.

“This [pandemic] absolutely affects everyone,” Ms. Horne said in an interview. “For the majority of our micro-enterprises or one-owner businesses, those mom-and-pop businesses, this absolutely has been the most difficult year that I’ve seen them struggle with. They’re really looking for programs that are going to help get over the hump, but also to make some policies on how nationally we’re going to get past this pandemic.”

President Biden’s $1.9 trillion coronavirus relief plan, the sixth rescue package from Washington in the past year, would provide $15 billion in grants for businesses and $35 billion for small-business loans. The Paycheck Protection Program reopened Jan. 11 with a new round of $284 billion in forgivable small-business loans to keep employees on payrolls.

Small-business advocates say the aid will help, but they are concerned about the administration’s plans to more than double the federal minimum wage to $15 an hour and to impose more regulations, especially with the pandemic out of control.

A higher government-mandated minimum wage “reduces job opportunities for low-income, young, and/or inexperienced workers,” Raymond Keating, chief economist for the Small Business & Entrepreneurship Council, wrote in a blog post. “An assortment of jobs are simply priced out of the marketplace. Those positions wind up being terminated, and the tasks either automated, shifted to other workers, or eliminated altogether.”

The National Federation of Independent Business found in a survey this week that 92% of its members oppose the minimum wage increase. The advocacy group for small business said the pay hike would result in 6 million jobs lost — 57% at small businesses, including 700,000 jobs at the smallest firms, 165,000 jobs lost in the restaurant industry and 162,000 jobs lost in the retail sector.

“A $15 minimum wage would hurt the small businesses that have been hardest hit by the pandemic and government-mandated shutdowns,” said Kevin Kuhlman, NFIB’s vice president of federal government relations. “Companies listed on Wall Street may support a much higher minimum wage because it would give them a competitive advantage, but a hike would make it that much harder for Main Street to even continue to exist. Hasn’t small business suffered enough over the past year?”

The NFIB is ramping up its grassroots effort to fight the minimum wage increase.

The federal minimum wage was last increased in 2009, to $7.25 per hour. Democrats are vowing to raise it in the COVID-19 relief package that could pass Congress without any Republican support.

“I think it’s way overdue that we change it,” Sen. Tim Kaine, Virginia Democrat, said Wednesday.

Much of the administration’s COVID-19 relief efforts are now focused on speeding up vaccinations nationwide. Sen. Thomas R. Carper, Delaware Democrat, said it was central to the discussion during a meeting with Mr. Biden at the White House on Wednesday.

“The main thing is getting people vaccinated,” Mr. Carper told reporters. “The main thing is to put the coronavirus in our rearview mirror.”

The ongoing battle over reopening states’ economies and controlling the pandemic came to a head this week in Kentucky, where the General Assembly voted to override Democratic Gov. Andy Beshear’s vetoes of six Republican-supported bills, most of which curtailed the governor’s power. Mr. Beshear filed a lawsuit to stop three of the bills, which would limit his emergency authority to impose COVID-19 restrictions, from becoming law.

One of the bills would allow businesses, schools and churches to stay open if they meet the COVID-19 guidelines set by the federal Centers for Disease Control and Prevention or the state’s executive branch, whichever is least restrictive.

In the Chamber of Commerce survey, just 40% of small-business owners said they believe their business can continue to operate indefinitely under current conditions. The biggest concern is COVID-19. More than 80% are worried about the virus’ impact on the economy.

“Coronavirus continues to take a devastating toll on America’s small businesses. In fact, half of them say they can operate for a year or less before closing permanently,” said Chamber Executive Vice President Neil Bradley. “We must ensure small businesses across the country receive the assistance they need from the federal government. Not passing the bipartisan compromise for temporary and targeted relief risks the permanent loss of tens of thousands of small businesses, financial hardship for millions of Americans and unnecessary delays in combating the pandemic.”

Despite the hardships for businesses, there are some encouraging economic signs. The private payroll firm ADP reported this week that the U.S. private sector added 174,000 jobs in January, including 51,000 by small businesses. The leisure and hospitality sector added 35,000 jobs.

The U.S. economy is expected to expand more rapidly in 2021 than officials projected in July, but it will take several years for output to reach its full potential and for the number of employed workers to return to its pre-pandemic peak, according to economic projections released Monday.

The Congressional Budget Office said it expects gross domestic product to return to its pre-pandemic level by the middle of this year, partly because of the spike in government aid for businesses and workers last year. 

The gross domestic product is expected to grow 3.7% in the fourth quarter of 2021, and growth is forecast to average 2.6% per year through 2025, the CBO said. Economic output shrank by 3.5% in 2020, the worst performance since 1946.

The CBO estimated that the unemployment rate will fall to 5.3% by the end of this year, down from 6.8% in December. But the office said jobs won’t fully return to their pre-pandemic levels until 2024.