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President-elect Joe Biden has proposed raising the federal minimum wage from $ 7.25 to $ 15 an hour as part of his coronavirus relief program announced Thursday night. Such a dramatic increase would exacerbate the devastating impact of economic lockdowns on small businesses, while doing great harm to 10.7 million Americans who are unemployed.
The situation is so dire 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 on. flow.
Biden is proposing to add an additional $ 190 billion in aid to minority businesses. But if small businesses are already on the verge of failure and only need help paying their employees, why impose a big pay rise that makes it more difficult?
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Even with the help available to date, tens of thousands of small businesses have been forced to shut down and hundreds of thousands more are at risk. Each closure erases the jobs created by that company and subjects its former employees to the real minimum wage: $ 0 an hour.
Of course, an increase in the minimum wage (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 lucky enough to have a job, wages have generally gone up.
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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 rose to $ 28.69 in March 2020. Since April, it has never dropped below $ 29.32 and currently sits at $ 29.81. That’s a 15% increase since 2017 and over 4% in the past nine months alone.
Part of the reason for the rise in wages is that many of the jobs lost when the pandemic hit were low-wage jobs. But since then, big employers like Starbucks and Walmart have increased wages to find and retain workers ready to work during the pandemic despite the health risks.
The left complains that low-paid workers are forced to take advantage of government welfare programs to get by. But raising the minimum wage to the point of killing small businesses only increases the need for government assistance.
People who are employed and have the potential to increase their income weigh much less on our social protection system than those who are not. Is it really better to throw people out of work by 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 to increase the minimum wage to $ 15. He 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, the rising consumer prices and slowing economic growth.
Notably, the Congressional Budget Office ended this disheartening analysis amid the cheapest job market on record. In 2019, the unemployment rate steadily hit its lowest level in 50 years, while the number of people employed hit historic highs. Family income saw its biggest increase on record to reach its highest level on record, while the poverty rate fell to a new record low.
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Imagine the devastating impact that a minimum wage of $ 15 would have today as a result of economic lockdowns triggered by the COVID-19 pandemic that has destroyed tens of thousands of small businesses. The result so far is both the 10.7 million unemployed and the additional 7.1 million people who are not in the labor market (thus not considered unemployed) but who “want a job now. “.
That means nearly 18 million people are competing for just 6.5 million job openings, according to the latest data from the Bureau of Labor Statistics.
In addition, 20 states and many localities are already increasing their minimum wages this year, reducing the need for a federal increase.
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Any increase in the minimum wage 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 the differences between metropolitan areas within that state. In any case, a federal minimum wage is the worst option for people looking for work in economically troubled regions.
Getting back to the historic strength of the labor market we experienced in 2019 will require more than a vaccine. It will require pro-growth policies that encourage business growth and people to work. Despite the sales pitch, a federal minimum wage of $ 15 would have exactly the opposite effect.
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