Elected President Joe Biden proposed that the federal minimum wage be increased from the current $ 7.25 to $ 15 per hour as part of his coronavirus aid package announced Thursday night. Such a dramatic increase would exacerbate the devastating impact that economic barriers have on small businesses, while causing great damage to 10.7 million unemployed Americans.
The situation is so desperate for struggling small businesses that Congress recently increased the total available funds under the Payroll Protection Program to nearly $ 1 trillion to help them pay their employees and stay afloat.
Biden proposes to add another $ 190 billion in aid to minority businesses. But if small businesses are already looking for failure and need help to pay their employees, then why does this impose a large wage increase that makes it more difficult?
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Even with the help that has been available so far, tens of thousands of small businesses have been forced to close permanently and hundreds of thousands more are at risk. Each closure destroys the job the company has created and subjects its former employees to the actual minimum wage: $ 0 per 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 who are happy to have jobs, wages have generally risen.
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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 had increased to $ 28.69 by March 2020. Since April, it has never fallen below $ 29.32 and currently stands at $ 29.81. This is an increase of 15% since 2017 and by just over 4% in the last nine months.
Part of the reason wages are rising is that many of the jobs lost when the pandemic hit were low wages. But since then, big employers like Starbucks and Walmart have increased wages to find and retain employees who are willing to work during the pandemic despite the health risks.
The left complains that low-wage workers are being forced to take advantage of government welfare programs to get by. But raising the minimum wage to the point where it kills small businesses only increases the need for state aid.
People with jobs and the potential to increase their earnings tax our welfare system much less than people without jobs. Is it really better to throw people out of work and force them to rely entirely on welfare? For job seekers, it is difficult to imagine a worse time to raise the minimum wage.
In 2019, the Congressional Budget Office analyzed a House bill that proposes raising the minimum wage to $ 15. It found that the increase in the family would decrease by almost $ 9 billion during the year due to the loss of about 1.3 million jobs, increased consumer prices and reduced economic growth.
In particular, the Congressional Budget Office completed this discouraging analysis amid the best labor market recorded. In 2019, the unemployment rate consistently reached the 50-year low, while the number of people employed reached historic highs. Family income reached its highest increase at the highest level to the highest level, but the poverty rate dropped to a new record low.
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Imagine the devastating impact that a minimum wage of $ 15 would have today following economic cuts caused by the COVID-19 pandemic that destroyed tens of thousands of small businesses. The result so far is both the 10.7 million unemployed plus another 7.1 million people who are not in the labor force (so it is not counted as unemployed) but who ‘now want a job’.
That means nearly 18 million people compete for just 6.5 million jobs, according to the latest data from the Bureau of Labor Statistics.
In addition, 20 states and numerous communities are raising their minimum wages as early as this year, reducing the need for a federal increase.
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Any minimum wage increase must be at 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 nationwide minimum wage ignores differences between metropolitan areas in the state. Either way, a federal minimum wage is the worst solution for people looking for work in areas with economic hardship.
Returning to the historic labor market strength we experienced in 2019 requires more than just a vaccine. It requires pro-growth policies that grow businesses and employ people. Despite the selling price, a federal minimum wage of $ 15 will have exactly the opposite effect.
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