The Time Is Not Right for a National Minimum Wage Hike
Burdensome wage mandates raise labor costs, make life difficult for cash-strapped employers
Lost in the shuffle of recounts and run-offs, the 2020 election also resulted in sweeping policy changes at the state level. States like Arizona and New Jersey legalized marijuana, while Oregon decriminalized the possession and personal use of cocaine, heroin, and methamphetamines.
Drugs aside, many policy changes will affect the small business community—from employers to employees. Perhaps most notably, Florida voters approved a ballot measure that raises the state’s minimum wage to $15 an hour by 2026. The Sunshine State is the first state in the South and eighth state overall to adopt a $15 minimum wage.
First, there are two points of order:
- The “minimum wage” is in fact an entry-level wage. About half of all workers paid the federal minimum wage ($7.25 an hour) are under the age of 25. The minimum wage is not intended to sustain workers for the entirety of their professional careers, but rather to act as stepping-stone for those in starter jobs, such as bartending or waitressing.
- While a $15 minimum wage does not sound like much, it comes out to $30,000 per year. This may not score a penthouse in New York City, but the median personal income in the United States is just over $35,000 per year, so a $15 minimum wage is not an insignificant amount of money either.
Which brings us to cost: Florida employers will be the ones bearing the cost of a $15 minimum wage. When a state government raises the minimum wage floor, that money does not appear out of the blue. The government is not subsidizing employers to pay their workers more. On the contrary, those employers are forced to take that money out of their operating revenue, shrinking their annual profits.
It is Economics 101: When labor costs go up, profit goes down. And, when labor costs rise, it becomes more difficult to hire new employees and grow a business. The margins shrink.
Those labor costs are disproportionately borne by small business owners, who naturally have less wiggle room than the likes of Amazon or Walmart. Nearly 30 percent of small business owners admit that a higher minimum wage would restrict them from hiring additional help, which is necessary for business expansion. Another 14 percent would be forced to let employees go. These are real, human consequences.
In Florida, the job loss may be catastrophic. According to economists from Miami University and Trinity University, the $15 minimum wage is expected to lead to 158,000 fewer jobs in Florida. The hospitality industry is especially at risk, not only because of the wage hike, but also the compounding effect of the COVID-19 pandemic. As Carol Dover, president of the Florida Restaurant and Lodging Association, recently put it: “Behind all the warm and fuzzies lie a plethora of unintended consequences.”
The COVID-19 effect cannot be overstated. Due to the pandemic, hotels and restaurants have already been forced to remain closed or only partially open, while foot traffic has drastically decreased. As a result, those employers have had to cut costs—from reducing hours to laying off workers altogether. Many have shuttered their doors completely.
And now the government is forcing those same employers to take on even more costs? As if economic lockdowns were not costly enough?
Nevertheless, the cries for a $15 minimum wage at the federal level are growing louder. After the Florida ballot measure, NPR’s Andrea Hsu posed the question: “Is the time right for a big nationwide hike?”
She is not alone. The incoming Biden administration has voiced support for a federal minimum wage of $15 an hour, claiming “all Americans are owed a raise.”
Perhaps, but the federal government is not giving them one. Again, that would fall on employers, many of whom are cash-strapped due to a novel virus. If saddled with a compulsory wage hike, many would be forced to make difficult decisions. Based on recent research, a federal minimum wage of $15 an hour would cost the U.S. economy more than two million jobs. Given that the minimum wage is indeed an entry-level wage, teenagers would account for over 40 percent of those lost jobs, ripping apart their pocketbooks and delaying their career advancement.
A national mandate also fails to take into account differences between states. A $15 minimum wage may be more palatable in New York City (although the evidence isn’t so promising), but employers in rural Alabama or Wyoming—where wages tend to be lower—are not as equipped to offer drastic pay increases. In economically depressed markets, the unintended consequences become even more pronounced.
Look at it this way: Over the last two decades, the federal minimum wage has grown by 41 percent. A $15 minimum wage by 2027, as proposed in the Democrats’ Raise the Wage Act, would represent a 107 percent increase in just six years. That’s right: a 107 percent increase, during a pandemic no less.
Is the time right for a big nationwide hike? The job loss numbers are in and the answer is “no.”
Luka Ladan serves as president and CEO of Zenica Public Relations. He graduated from Vassar College with a B.A. in Political Science and Correlate Sequence in International Economics.