Despite 2 Strikes at Job-Killing Minimum Wage Hike, Senators Keep Swinging

COMMENTARY Jobs and Labor

Despite 2 Strikes at Job-Killing Minimum Wage Hike, Senators Keep Swinging

Mar 2nd, 2021 3 min read

Commentary By

Adam Michel

Former Senior Policy Analyst, Grover M. Hermann Center

Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Activists with Our Revolution hold $15 minimum wage signs outside the Capitol complex on Thursday, Feb. 25, 2021. Bill Clark / CQ-Roll Call, Inc / Getty Images

Key Takeaways

Democrats pivoted to a new, even worse plan. They wanted to tax businesses that hire entry-level and lower-skilled workers. They wanted to tax the American dream.

The policy would harm younger, less-educated, and otherwise marginalized workers the most—some of the same populations that have been hardest hit by the pandemic.

Lawmakers can’t create good jobs or higher incomes simply by mandating them into existence. Opportunities and income growth come from workers.

First, the Democrats’ $15 federal hourly minimum wage mandate was ruled out by the Senate’s parliamentarian because it didn’t conform to the rules of the Senate for passing reconciliation bills with a 50-vote threshold.

So, Democrats pivoted to a new, even worse plan.

They wanted to tax businesses that hire entry-level and lower-skilled workers. They wanted to tax the American dream.

The “Plan B” worker tax would have imposed new tax increases on American employers equal to 5% of their payroll costs if they employed workers earning less than “a certain amount.” That amount wasn’t specified, but could be the same annual levels as the proposal to raise the minimum wage to $15 an hour by 2025 and index it for inflation thereafter.

As Matt Haller, a spokesman for the International Franchise Association, put it, “The only thing worse than doubling the labor costs of small businesses is disguising it through a backdoor tax increase in the middle of a pandemic while they are still struggling to recover from the worst economic downturn in nearly a century.”

Fortunately, Sens. Ron Wyden, D-Ore., and Bernie Sanders, I-Vt., backed off their retrograde idea of raising taxes on American employers—for now.

President Joe Biden and Democrats in Congress are already contemplating their next move to impose a nationwide $15 minimum wage.

But no matter the method—doubling the hourly minimum wage to $15, imposing punitive taxes on employers who hire low-skill and entry-level workers, or whatever lawmakers propose next—attempting to raise wages through government fiat would instead eliminate jobs and increase prices.

The economic fact is that when the government forces businesses to pay an employee a mandated hourly wage, businesses are left with few options: cut hours, lay off workers, reduce benefits, and increase prices—or some combination thereof. 

Most often, businesses are forced to cut jobs, which is why the Congressional Budget Office reports that raising the minimum wage to $15 an hour nationwide would result in 1.4 million lost jobs in a few short years.

The policy would harm younger, less-educated, and otherwise marginalized workers the most—some of the same populations that have been hardest hit by the pandemic.

Wage mandates would also result in exploding costs for essential goods as employers pass new labor costs on through higher prices.

Under a $15 minimum wage, child care costs would rise by thousands of dollars—21% on average, and by more than 30% in 10 states.

Food prices would also increase, including an estimated 38% increase in fast-food prices.   

Another unintended consequence is increased automation. Some companies, such as Amazon, have achieved a $15 minimum wage by automating jobs that produce less than $36,000 per year in value (the cost to employers, with taxes, of a $15-per-hour job).

Replacing more workers with self-ordering kiosks, automated customer service systems, and robots won’t produce more good-paying jobs for low-wage workers. 

Democrats know that their wage-mandate policies will hurt workers and force businesses to make tough and unnecessary trade-offs with Americans’ livelihoods, such as moving jobs overseas or replacing full-time employees with part-time contractors.

That’s why “Plan B” included measures to further tax and penalize businesses that would have tried to adapt to the new mandates.

But that’s a slippery slope into government micromanagement of private companies’ decisions.

If liberal lawmakers continue to intervene in the decisions of private-sector companies—attempting to play CEO instead of elected official—that could lead to all sorts of new administrative, legal, and financial problems.

For example, will the IRS need a new department set up to call into question every overseas hire and each contractor with whom companies do business, to ensure they are not trying to evade U.S. wage mandates?

Ultimately, many businesses simply won’t be able to shift their costs or restructure their labor force enough to remain profitable with something like a $15 hourly minimum wage mandate and will go out of business.

Job losses of 1.4 million is only a starting point for the Democrats’ proposed tax on workers.

That’s because lawmakers can’t create good jobs or higher incomes simply by mandating them into existence. Opportunities and income growth come from workers achieving the education and experience necessary to help them produce more value.

Cutting off the bottom rungs on the career ladder through a $15 national hourly minimum wage and threatening employers with new taxes on entry-level and low-skilled jobs will do far more harm than good for workers and the American economy. 

There are ways, however, that lawmakers can help workers achieve higher incomes without taking away others’ jobs and incomes or taxing employers who provide jobs.

Congress should reduce regulatory burdens on businesses, eliminate unnecessary licensing restrictions for employees, expand nontraditional education options, and keep taxes low on employers and employees alike.

This piece originally appeared in The Daily Signal.