President-elect Joe Biden proposed increasing the federal minimum wage from the current $7.25 to $15 an hour as part of his coronavirus relief package announced Thursday night. Such a dramatic increase would exacerbate the devastating impact economic lockdowns are having on small businesses, while doing great harm to 10.7 million Americans who are unemployed.
The situation is so desperate for struggling small businesses that Congress recently increased the total funds available under the Payroll Protection Program to nearly $1 trillion to help them pay their employees and stay afloat.
Biden proposes adding another $190 billion in aid for minority businesses. But if small businesses are already on the cusp of failure and need help just to pay their employees, why impose a big wage increase that makes doing so more difficult?
Even with the help available to date, tens of thousands of small businesses have been forced to close permanently and hundreds of thousands more are at risk. Every closure wipes out the jobs those business created and subjects its former employees to the real minimum wage: $0 an hour.
Of course, a minimum wage increase (the first at the federal level since 2009) only helps if you have a job. But it is the unemployed who are suffering during this pandemic. For people fortunate enough to have a job, wages have generally increased.
According to the Bureau of Labor Statistics, when President Trump took office in January 2017 the average hourly wage for American workers was $26. It increased to $28.69 by March 2020. Since April, it has never dropped below $29.32 and currently sits at $29.81. That a 15% increase since 2017 and over 4% in just the last nine months.
Part of the reason wages are up is that many of the jobs lost when the pandemic hit were low-wage jobs. But since then, large employers such as Starbucks and Walmart have increased wages to find and retain employees willing to work during the pandemic despite the health risks.
The left complains that low-wage employees are forced to take advantage of government welfare programs to get by. But increasing the minimum wage to the point where it kills small businesses only increases the need for government assistance.
People with a job and the potential to increase their earnings burden our welfare system far less than those without a job. Is it really better throw people out of work forcing them to rely entirely on welfare? For job seekers, it’s hard to imagine a worse time to raise the minimum wage.
In 2019 the Congressional Budget Office analyzed a House bill that proposed raising the minimum wage to $15. It found that in the year the increase took effect it would reduce family income by nearly $9 billion due to the loss of about 1.3 million jobs, increased consumer prices and reduced economic growth.
Notably, the Congressional Budget Office completed this discouraging analysis in the midst of the best labor market on record. In 2019 the unemployment rate consistently hit 50-year lows, while the number of people employed hit historic highs. Family income saw its largest increase on record to its highest level on record while the poverty rate experienced a record decline to a new record low.
Imagine the devastating impact a $15 minimum wage would have today in the wake of economic lockdowns sparked by the COVID-19 pandemic that have destroyed tens of thousands of small businesses. The result to date is both the 10.7 million people unemployed plus another 7.1 million people who are out of the labor force (so are not counted as unemployed) but who “want a job now.”
That means nearly 18 million people are competing for only 6.5 million job openings, according to the latest data from the Bureau of Labor Statistics.
In addition, 20 states and numerous localities are already increasing their minimum wages this year, diminishing the need for a federal increase.
Any minimum wage increase should be at the state or local level — and the more local the better. The federal minimum wage necessarily ignores differences in the cost of living between states, while a statewide minimum wage ignores differences between metropolitan areas within that state. In any event, a federal minimum wage is the worst solution for people seeking work in economically distressed areas.
Getting back to the historic labor market strength we experienced in 2019 will require more than a vaccine. It will require pro-growth policies that get businesses growing and people working. Despite the sales pitch, a federal $15 minimum wage would have exactly the opposite effect.
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