Biden’s COVID Stimulus Plan To Double Minimum Wage Will Hurt the People He Wants To Help

COMMENTARY Jobs and Labor

Biden’s COVID Stimulus Plan To Double Minimum Wage Will Hurt the People He Wants To Help

Feb 5th, 2021 5 min read
COMMENTARY BY
Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
U.S. President Joe Biden speaks as he lays out his plan for combating the coronavirus and jump-starting the nation’s economy at the Queen theater Jan. 14, 2021 in Wilmington, DE. Alex Wong / Staff / Getty Images

Key Takeaways

Minimum wage laws don’t make people more productive; they just force employers to extract the required wage increases from others in ways that leave many worse off.

A $15 federal minimum wage could cut off the bottom rung of the career ladder, effectively precluding a large portion of Americans from obtaining jobs.

A Heritage Foundation report found that a $15 minimum wage would cause fast-food prices to increase by 38 percent. Grocery prices would also rise.

President Joe Biden and Democrats in Congress have proposed more than doubling the federal minimum wage as part of their next so-called Covid-19 recovery package. The idea is a major stumbling block for any bipartisan compromise because the idea is anathema to Republican lawmakers. They want any additional measures to be temporary, to be targeted to the health crisis, and to actually improve the lives of Americans rather than consist of feel-good policies that will disproportionately hurt the very people Democrats claim to want to help.

Higher incomes are a common goal, but a $15 minimum hourly wage is at best a naïve solution and at worst outright negligent. Minimum wage laws don’t make people more productive; they just force employers to extract the required wage increases from others in ways that leave many worse off. This includes cutting positions and raising prices, actions that above all harm younger, less-educated or otherwise marginalized workers—some of the same populations that have been hardest hit by the pandemic.

With retailers, restaurants and hotels already cutting staff by 20 to 30 percent and other businesses struggling to stay afloat, any policy that decreases employment, as the minimum wage frequently does, goes in the wrong direction. While a pre-pandemic Congressional Budget Office report on a $15 federal minimum wage estimated that it would boost income for some 17 million people, it would also cost some 1.3 million people their jobs.

Some studies have found higher job losses. An analysis of the economic impact of a $15 minimum wage in the wealthy Washington suburb of Montgomery County, Maryland, estimated that it would cause 1 out of every 3 low-wage jobs to disappear from the county.

Job losses are the most obvious outcome, but a $15 minimum wage would have many more unintended consequences. As the CBO report noted, a $15 minimum wage would also reduce total real family incomes, drive up deficits, increase inflation and interest rates, and lead to a smaller economy.

>>> Here Are 6 Ways a New Report Devastates the $15 Minimum Wage

The national nature of the proposed wage increase would impose unequal burdens across the U.S., triggering the largest consequences for the areas with lower median income levels. And unlike when state or local governments set the minimum wage above what the market would dictate, workers who lose jobs, businesses that cannot remain profitable, and individuals and families that no longer have access to goods and services at affordable prices won’t have anywhere else in the United States to go.

Instead of workers being able to pick up additional hours or find a new job elsewhere, a $15 federal minimum wage could cut off the bottom rung of the career ladder, effectively precluding a large portion of Americans from obtaining jobs.

Already, studies show that minimum wages have the worst consequences for the young and less-educated, sometimes leading to lower future earnings. About 71 million Americans have no education beyond a high school degree and some 26 million American adults lack even that. African Americans are more than twice as likely as non-Hispanic whites to lack a high school degree, while Hispanics are five times more likely to have not completed high school.

Many of these workers—particularly the younger, less-experienced ones—are not yet capable of contributing more than $36,000 per year in value to a company (what a $15 minimum-wage job costs an employer) until they gain more experience or education, neither of which they can do if a $15 minimum wage closes off opportunities to get their foot in the door and to earn income to help pay for additional education.

And unlike many of the Covid-19 job losses that will hopefully come back once health concerns subside, positions lost to a $15 minimum wage likely won’t return as lost jobs would be the result of companies closing their doors, outsourcing or automating low wage jobs.

Amazon achieved a $15 minimum wage of its own accord in part by automating jobs that didn’t produce at least $15 per hour in value. Massive companies like Amazon can afford to invest in automation, but smaller businesses—especially those struggling to survive the Covid-19 pandemic—can’t, so they are more likely to lay off workers or go out of business.

Beyond the employees who lose hours or positions, there is an even wider swath of the public that will be harmed by the minimum wage hike: consumers. When New York City increased its minimum wage by $2, from $13 to $15 (much smaller than the proposed $7.75 federal increase), 86 percent of restaurants reported increasing their prices in response. A Heritage Foundation report found that a $15 minimum wage would cause fast-food prices to increase by 38 percent. Grocery prices would also rise.

Higher prices also mean lower demand. Forty percent of restaurants reported losing repeat customers as a result of price increases. And these minimum wage price increases hit lower-income earners hardest because they spend a higher portion of their incomes, often on items that would experience minimum-wage-induced price increases.

Another huge ramification of a $15 minimum wage would be on the cost of child care. At $11,000 per year, on average, for an infant and $9,000 for a 4-year-old, a 20 percent or more increase in the price of child care would cost families thousands of dollars, likely making it unaffordable for millions. That could put parents who are caretakers out of work.

>>> The Truth About a $15 Minimum Wage

It’s important to keep in mind that the U.S. has very limited experience with a $15 minimum wage. Only a handful of high-cost U.S. cities like the District of Columbia, New York and Los Angeles have fully implemented a $15 minimum wage, and those cities already had relatively high wages. In Mississippi, the median wage is $15. Imposing a $15 minimum wage there would be like setting D.C.’s median wage of $35.74 as the District’s minimum wage.

More than doubling the federal minimum wage from $7.25 to $15 would be an unprecedented and risky move, leading to a cascade of unintended consequences extending far beyond current low-wage workers and imposing disparate impacts on less-educated and younger individuals.

Rather than mandating policies that benefit some at the expense of others, policymakers should focus on expanding income opportunities for all workers. Reducing regulatory burdens on small businesses, eliminating unnecessary licensing restrictions, expanding nontraditional education options and keeping doors open for alternative work arrangements are just a few ways to help workers achieve authentic and lasting income gains without the unintended consequences of doubling the minimum wage.

This piece originally appeared in Think