Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?

The article investigates the impact of one-size-fits-all federal minimum wage increases on the financial health of small businesses in the United States, focusing on establishments in states where the effective minimum wage is equal to the federal rate ("bounded states") compared to those with higher state minimum wages ("unbounded states"). Using Dun & Bradstreet PAYDEX credit scores for approximately 15.2 million establishments from 1989 to 2013, the study finds that federal minimum wage hikes lead to delayed payments to suppliers, lower credit scores, and increased financial stress, particularly for small, young, labor-intensive, and minimum-wage-sensitive businesses in competitive and low-income areas. These financial strains are associated with higher exit rates and employment reductions among affected small businesses. The authors employ various empirical strategies—including difference-in-differences, bordering-county analyses, and fuzzy triple differences exploiting Fair Labor Standards Act exemptions—to control for confounding factors and local economic conditions, concluding that uniform federal minimum wage increases can impose unintended costs on certain small businesses.