Rising Wages, Rising Opportunities: How Minimum Wage Changes Can Benefit Your Business

Altogether, 21 states have already raised, or will raise, their minimum wages in 2025. But what does this mean for employers? Higher labor costs and less profitability? Not so fast: the minimum wage 2025 increases can surprisingly benefit businesses in a number of ways. 

Specifically, there is a growing body of evidence that links higher wages to increased productivity, improved employee engagement, and even greater customer satisfaction. For HR professionals and business leaders, understanding how to leverage the benefits of increasing the minimum wage can turn a potential challenge and sunk cost into a strategic opportunity and improved revenues.

The Productivity Link

To start, higher wages often mean happier—and therefore more productive—employees. 

“The average person would imagine once wages go up, including the minimum wage, workers would become more attached to their employer and they might become more productive because they are more interested in keeping their job,” says Nicola Persico, a professor of managerial economics and decision sciences at the Kellogg School of Management at Northwestern University. In short, when workers perceive that their pay reflects their contributions and market realities, their commitment to their roles increases.

Research backs that claim up. A study published in the Journal of Labor Economics found that a modest $0.42 increase in the minimum wage led to a 4.6% productivity increase among workers in the bottom 40th percentile of earnings. Similarly, a Harvard University study quantified the return on investment of wage increases: for every dollar spent raising wages, businesses saw an ROI of $1.44 for warehouse workers and $1.56 for customer service representatives.

Employee Engagement and Retention

The dynamic described above extends to retention. In fact, raising wages is often one of the most effective employee engagement strategies. Low-wage roles often suffer from high turnover rates, which can be costly for businesses. Recruiting, onboarding, and training new employees requires time and resources, and frequent departures can disrupt operations. Wage increases can serve as a powerful antidote to this problem. By offering competitive pay, you signal to employees that they are valued, making them more likely to stay and grow with your organization.

Amy Mosher, chief people officer at HR technology firm iSolved, told the Society for Human Resource Management (SHRM) that her own firm saw an immediate reduction in turnover after raising its own minimum wages. She argues that wage increases can potentially pay for themselves when considering the cost of replacing a lost worker.

Enterprise organizations report the same. After raising its own wages before the pandemic, Walmart CEO Doug McMillon commented, “[O]ur job applications are going up and we are seeing some relief in turnover.”

Increasing Customer Satisfaction

The connection between employee compensation and customer satisfaction is another area that showcases the potential benefits of increasing the minimum wage. Frontline employees—such as retail staff, restaurant servers, and customer service representatives—are often the face of your business. Their interactions with customers shape perceptions of your brand. As such, wage increases can be not just one of the best employee engagement strategies but also one of the best customer engagement tactics. 

When employees feel financially secure and appreciated, they are more likely to exhibit positive behaviors such as attentiveness, enthusiasm, and problem-solving. Again, research backs this up. Researchers from Cornell University’s SC Johnson College of Business looked at the impact of minimum wage increases in the restaurant industry and found even customers ended up happier. 

“Our data show that, for a particular class of restaurants, consumers benefit from an increase in [minimum] wage because employees are motivated and owners are motivated to provide better service,” says Vrinda Kadiyali, the lead researcher and a Professor of Management at Cornell. “The discussion around minimum wage has been all around how prices will go up, and consumers will be worse off. But we find, in our research, that consumers are happier with the overall quality.”

Michael Lastoria, the CEO of &pizza, a Washington, D.C.-based chain of pizzerias, found the same. His pizzerias offer starting rates above the state minimum wage. The result? “Our employee morale has skyrocketed and with it our customer experience and our bottom line,” he told SHRM. “Happy employees drive sales. Customers coming back, engaging and re-engaging, increases revenue.”

Context and Handling of the Minimum Wage 2025 Increase Matters

While higher wages create a strong foundation for improved performance, they are not a panacea, and how and in what situation they are implemented can make a difference. 

For example, a study from the Kellogg School of Business Management found that the benefits of minimum wage increases were significantly influenced by managerial supervision. “Raising minimum wage is a cost for businesses, but it works well as long as outside employment options aren’t great and if there’s good monitoring of workers within the firm,” says Erika Deserranno, associate professor of managerial economics and decision sciences. “Productivity goes up and departures go down.”

Specifically, Deserranno studied a “natural experiment” comparing geographically close stores that happened to fall on opposite sides of a jurisdictional border, one side of which had a minimum wage increase and the other didn’t. They found that the minimum wage increase had the potential to lead to better performance (like 4.5% higher sales of goods) and 19% fewer terminations of lower-performing employees. 

However, they also found that other factors influenced the impact of the wage increase. In environments where supervisors provided clear guidance, support, and feedback, wage increases led to marked improvements in productivity and reduced turnover. However, in the absence of effective leadership, the positive effects were less pronounced.

The Bright Side of the Minimum Wage in 2025

The conversation around minimum wage increases often focuses on short-term challenges, but the long-term opportunities are equally important. To maximize the benefits of increasing the minimum wage, businesses need a strategic approach. This starts with assessing regional opportunities and challenges. Wage increases can have varying impacts depending on local labor markets, cost of living, and industry dynamics. HR professionals can play a key role in conducting this analysis, using data to inform decision-making.

One valuable resource for this process is our comprehensive guide to the minimum wage 2025 increases, designed to help businesses evaluate regional opportunities. By leveraging this tool, you can gain insights into how wage adjustments align with your business goals and identify strategies to optimize outcomes.