The debate over raising the minimum wage is gaining momentum as lawmakers on both sides of the aisle assess the benefits and consequences of raising the lowest wage to $ 15 an hour.
“We want to see Americans’ wages go up, we want to see more jobs created – not less – and we want to see companies thrive, especially the small businesses that are the backbone of our economy,” Rep. Dean Phillips, D-Minn., Said Thursday during a hearing convened by the House Committee on Small Business.
At the end of last month, Democrats introduced the 2021 Wage Increase Act, which would gradually raise the federal minimum wage from $ 7.25 to $ 15 by 2025. The legislation is currently included in the House version of the $ 1.9 trillion aid that is set to vote on Friday, but it is unclear whether that provision will pass the Senate.
Another option, announced on Tuesday by Senators Mitt Romney, R-Utah and Tom Cotton, R-Ark., Would be to raise the federal minimum wage to $ 10 an hour by 2025 and then automatically increase it every two years to match the inflation rate. However, the bill also requires employers to use e-verify to ensure that companies do not hire illegal immigrants.
About 1.1 million hourly workers earned wages equal to or less than the minimum wage last year, according to the Bureau of Labor Statistics. But there are many millions more workers who earn just above the minimum wage.
Raising the federal minimum wage to $ 15 an hour would increase the wages of 17 million American workers, according to the Congressional Budget Office. Another 10 million additional workers earning just over $ 15 an hour would be affected.
Meanwhile, the $ 10 increase proposed by Romney and Cotton would only raise the wages of 4.9 million workers, or 3.2% of the workforce, according to a report released on Thursday by the Policy Institute. Economical.
Will the legislation create another blow to small businesses?
There is no doubt that companies around the world have been dramatically impacted by the Covid-19 pandemic, and this is especially true for small businesses in the United States. About 53% of companies with less than 50 employees surveyed reported that the pandemic had a moderate to severe impact on their business, according to the CBIZ Main Street Index.
In light of these struggles, some lawmakers feel that now is not the time to increase companies’ operating costs. “A federal and national order to raise the minimum wage to $ 15 an hour will get us back to where we were months ago – American jobs destroyed, small businesses forced to close and lost savings. I can’t imagine anything more. devastating at a time when our small businesses are barely recovering, “said MP Elizabeth Ann Van Duyne, R-TX.
In addition, many opponents of the $ 15 minimum wage fear that this will lead to job losses and business closures. The CBO report found that raising the federal minimum wage to $ 15 would reduce employment in the U.S. by 1.4 million, or about 0.9%.
Still, advocates of wage increases say that raising the federal minimum to $ 15 an hour will not only benefit workers, but will also help small businesses, increase consumer spending, reduce turnover and encourage better productivity and job satisfaction. client.
But the reality can be complicated, as shown by companies that already pay above the minimum wage. This is the case with the Punch Pizza chain in St. Paul, Minnesota, which was recognized in the state of former President Barack Obama’s union in 2014 for paying its employees above the minimum wage and currently pays an average of $ 13. hourly for starting salaries. Established employees earn an average of $ 15 an hour, plus an additional $ 5 in tips, co-owner John Puckett said on Thursday during the Congressional hearing.
Punch Pizza lost more than $ 1 million in revenue last year and is likely to continue to lose tens of thousands of dollars a month this winter. “We hope to lose this until we can safely reopen our dining rooms,” says Puckett.
While paying employees more than the minimum wage is a priority, it means the company is giving up profit margins in the short term, since Punch Pizza’s labor costs represent about 40% of sales, says Puckett. And St. Paul is in the process of gradually raising the minimum wage to $ 15 an hour by 2022.
“We are trying to find out,” says Puckett of the impact of rising minimum wages on his business.
To combat rising labor costs, Punch Pizza focused on ways to increase sales, including expanding to deliveries during the pandemic. “We managed to survive on 100% take-out food and we think that, out of the pandemic, we will be able to retain more of that business and, hopefully, stay ahead of the minimum wage,” says Puckett.
Unintended consequences for families
While raising the minimum wage would potentially create more purchasing power for low-income Americans, it would also increase childcare costs by an average of 21% in the U.S., a new Heritage Foundation study concluded. This would add an extra expense of $ 3,728 per year for a family with two children due to rising labor costs, the study concluded.
The average early childhood worker earned $ 11.65 an hour in 2019, according to a recent report by the Center for the Study of Child Care Jobs at the University of California, Berkeley.
“One of the biggest impacts [of the $15 minimum wage] it’s going to be child care costs, “said Rachel Greszler, a researcher in economics, budget and rights at the Heritage Foundation, which tends to the right.
“For single mothers, it is not an option to work or not, and yet [they would] face thousands of dollars more in daycare costs per year. This will put these women in trouble, “says Greszler.
Who benefits from a higher minimum wage?
One of the arguments against raising the federal minimum wage is that many of the workers who earn $ 7.25 are part-time teenagers and college students who earn money from a side job.
It is true; many of the employees earning at or below the federal minimum wage of $ 7.25 an hour are younger. Before the pandemic, about 3.8% of hourly workers between the ages of 16 and 24 earned $ 7.25, compared with 1% of workers over 25, according to the BLS.
However, it is “deeply wrong” to characterize raising the minimum wage to $ 15 an hour as benefiting only teenagers, says Heidi Shierholz, a senior economist and policy director at the left-wing Economic Policy Institute.
That’s because there are many full-time, hourly adult employees who are earning just above the minimum wage, but still earn less than $ 15 an hour. Only about 1 in 10 of those who would benefit from a $ 15 minimum wage are teenagers, says Shierholz.
In fact, EPI research shows that more than half of those who would benefit from a $ 15 federal minimum wage are workers between 25 and 54, most of whom are women. More than a quarter of these workers have children.
“The increase in the minimum wage is long overdue. Workers who now receive the current federal minimum wage receive 30% less in terms adjusted for inflation than their colleagues received 53 years ago, ”said Shierholz.
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