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Study explores whether minimum wage hikes adversely affect franchises

The last few years have seen major changes in the minimum wage laws of cities and states across the nation. Indeed, 14 states -- through both legislation and ballot measures -- have introduced substantial minimum wage increases since 2014.

Some of these new laws draw a distinction between large employers and small employers, with the former having to pay workers a higher minimum wage owing to their perceived greater resources and larger profits. For example, the new minimum wage law enacted in the city of Seattle calls for all large corporations -- including franchises -- to pay workers a minimum wage of $15 per hour on an accelerated schedule.

The justification among many lawmakers for including relatively small franchises responsible for a higher minimum wage is that unlike their non-franchised counterparts, they have a distinct business advantage owing to their access to a sizeable corporate network.

Interestingly, a recently completed study by an adjunct professor at Carnegie Mellon University set out to examine whether this assumption was accurate.

As part of the study, the professor surveyed both non-franchised and franchised business owners in 24 of largest U.S. markets about a potential $15 per hour minimum wage, focusing on the eight industries that tend to employ more minimum wage employees (hotels, restaurants, etc.).

The survey revealed that it’s the franchised business owners who would actually struggle more with a minimum wage increase:

  • 66 percent of franchised business owners indicated they would have to consider cutting staff as opposed to 50 percent of non-franchised business owners
  • Almost 50 percent of franchised business owners indicated they would have to consider automated staffing alternatives as opposed to 33 percent of non-franchised business owners

As to the reasons behind these findings, the professor theorized that it could have to do with the fact that franchised business owners typically employ more entry-level employees.

Whatever the reasons, the findings are certainly fascinating. Indeed, it will be interesting to see the degree to which studies like these enter into conversations to increase the minimum wage here in Atlanta or across Georgia.

If you are an entrepreneurs looking to open a franchise , it may be beneficial to first consider sitting down with an experienced legal professional to learn more about the law and your options.  

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