President-elect Joe Biden has proposed raising the federal minimum wage from the current $ 7.25 to $ 15 an hour as part of his coronavirus aid package announced late on Thursday. Such a dramatic increase would exacerbate the devastating impact that economic blockages are having on small businesses, while doing great harm to 10.7 million unemployed Americans.
The situation is so desperate for struggling small businesses that Congress recently increased the total funds available in the Payroll Protection Program to almost $ 1 trillion to help them pay their employees and stay afloat.
Biden proposes to add an additional $ 190 billion in aid to minority companies. But if small businesses are already on the verge of failure and need help just to pay their employees, why impose a huge salary increase 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 close permanently and hundreds of thousands more are at risk. Each closure eliminates the jobs these companies created and subjects their 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 who are lucky enough to have a job, wages generally increase.
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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 increased to $ 28.69 in March 2020. Since April, never fell below $ 29.32 and is currently at $ 29.81. This represents an increase of 15% since 2017 and more than 4% in the last nine months alone.
Part of the reason wages have increased is that many of the jobs lost during the pandemic were low-paid jobs. But since then, big employers like Starbucks and Walmart have raised salaries to find and retain employees willing to work during the pandemic, despite health risks.
The left complains that low-income employees are forced to take advantage of the government’s welfare programs to survive. But raising the minimum wage to the point of killing small businesses only increases the need for government assistance.
People with jobs and the potential to increase their earnings put a lot less strain on our welfare system than people without jobs. Is it really better to get people out of work, forcing them to depend entirely on well-being? For job seekers, it is difficult to imagine a worse time to raise the minimum wage.
In 2019, the Congressional Budget Office reviewed a House bill that proposed raising the minimum wage to $ 15. He found that, in the year the increase took effect, it would reduce family income by almost $ 9 billion due to the loss of around 1.3 million jobs, rising consumer prices and reduced economic growth.
Notably, the Congressional Budget Office concluded this discouraging analysis amid the best job market on record. In 2019, the unemployment rate consistently reached 50-year lows, while the number of employed people reached historic levels. Family income had its biggest increase ever recorded to its highest level ever recorded, while the poverty rate experienced a record decline to a new minimum level.
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Imagine the devastating impact that a $ 15 minimum wage would have today in the wake of the economic blockages triggered by the COVID-19 pandemic that destroyed tens of thousands of small businesses. The result so far is 10.7 million unemployed people and 7.1 million more people who are out of the workforce (so they are not counted as unemployed), but who “want a job now”.
This means that almost 18 million people are competing for just 6.5 million places, according to the latest data from the Bureau of Labor Statistics.
In addition, 20 states and several locations are already raising their minimum wages this year, lessening the need for federal increases.
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Any increase in the minimum wage must 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 state minimum wage ignores differences between metropolitan areas within that state. In any case, a federal minimum wage is the worst solution for those looking for work in economically disadvantaged areas.
Returning to the historic strength of the labor market that we experienced in 2019 will require more than a vaccine. It will require pro-growth policies that make businesses grow and people work. Despite the sales pitch, a federal minimum wage of $ 15 would have just the opposite effect.
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