Impacts of A $15 Federal Minimum Wage

By Danita Knickerbocker

One of Joe Biden’s promises to his constituents while running for presidency in 2020, was that he was going to raise the federal minimum wage to $15 for all US employed workers. On January 22, 2021, President Joe Biden signed an EO1 to “Protect the Federal Workplace” in which he states that “The Director of OPM (Office of Personnel Management) shall provide a report to the President with recommendations to promote a $15/hour minimum wage for Federal employees.” This EO does not necessarily mean that all US employees will now have a minimum wage of $15/hr, but it does start the ball rolling by creating a $15 minimum wage for all federal employees. As early as January 15, 2021, Rep. Steve Cohen (D-TN) had introduced bill H.R.3252 on the House floor, “To provide for increases in the Federal minimum wage to $15 an hour.”

The purpose of raising the federal minimum wage, which has not changed since 2009, is to match the inflation of the cost of living in the US. According to Gabrielle Olya6 while referencing the Congressional Budget Office, “The increase in pay for these workers would move 1.3 million Americans above the poverty level, the CBO projected. The CBO also estimated that 1.3 million Americans could lose their jobs if a wage hike were enacted.” This means that, yes, 1.3 million may move above the poverty line, but it will also put 1.3 million completely out of work completely.

Raising the federal minimum wage always sounds great in theory, until you see the reality of the effects it has on not just millions who will lose their jobs, but also hundreds of thousands of small businesses that will not be able to stay open because the labor costs are now too high. According to Frank Corder5 in his article published on Y’all Politics, “The predictable result is that while a few people on the lower end of the wage scale will do better, businesses will react by either replacing workers with automation or reducing flexible part time hour arrangements for the people that can afford to lose it the least – single working mothers, students and unskilled workers.”

The COVID-19 plandemic has destroyed countless small businesses and raised the unemployment rate from a record low in 2019, to fearful heights in just a few months. A federal minimum wage increase will also bring on the advance of technology far sooner than our already struggling economy can handle. Businesses will find that it is cheaper to outsource to other countries (not contributing to the US economy even further) or invest in technological substitutes for their employees, to save money in the long run. According to Jack Kelly3 from FORBES magazine, “A rough back-of-the-envelope calculation of a typical restaurant that employs workers at $15 an hour exemplifies the unintended consequences of the minimum wage increase. If employees work eight hours a day each week, over the course of one year, the labor costs will be $436,800. This does not include insurance costs, benefits, payroll and other taxes. Most service-sector businesses have thin margins and an increase in this magnitude could close the company. If the restaurant raises prices too high, then they’ll lose their customers to other restaurants that either pay people under the table—skirting the laws—or deploy technology.”

This is not to say that there are no positive effects that would come from raising the federal minimum wage. According to J.B. Maverick4 from his article on Investopedia, “An intangible benefit that could translate into tangible benefits for both companies and employees is improved employee morale resulting from higher wages. Business owners frequently note the challenge of providing sufficient encouragement to spur workers to put maximum effort into their job duties, and that this is particularly problematic with low-wage workers who feel that their job efforts aren’t keeping them out of poverty.”

I guess the questions we should all be asking ourselves are these: Is it worth it to raise a couple million just over the poverty line, only to force just as many, or more, into poverty with no prospects other than to form a dependence on government aid? What will happen to tax rates and the cost of living if we raise the federal minimum wage to $15/hr? Will this divide our country even further then it already is right now, or will it provide unity?

Sources:

  1. https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/22/executive-order-protecting-the-federal-workforce/ 
  2. https://www.congress.gov/bill/117th-congress/house-bill/325/text?r=171&s=1
  3. https://www.forbes.com/sites/jackkelly/2019/07/10/the-unintended-consequences-of-the-15-minimum-wage/?sh=4033d3ede4a7
  4. https://www.investopedia.com/articles/markets-economy/090516/what-are-pros-and-cons-raising-minimum-wage.asp
  5. https://yallpolitics.com/2021/01/15/corder-no-joe-raising-minimum-wage-to-15-would-devastate-small-business-recovery/
  6. https://finance.yahoo.com/news/happened-places-raised-minimum-wage-194711258.html?guccounter=1&guce_referrer=aHR0cHM6Ly9kdWNrZHVja2dvLmNvbS8&guce_referrer_sig=AQAAAMDYx51m5oqysvY_–3wQehn1KRK79bJE7VfehG7cpcTbmTfnqJnBfhimLp1DqhOt_MktewhxuEAcu-h3Osq__aakA5Zu8B3qZOBiFGyWEFit2T7E75Ui83pVrjsGJS5cudAvbplg0H1dCxAJs4ljnq8Zi2-vGScKyxKBzqafY4d