[Editor's note: This story originally was published by Real Clear Markets.]
By Andrew Wilford
Real Clear Markets
Raising the federal minimum wage from its current $7.25 an hour rate has been a progressive dream for some time. So much so, it seems, that Democrats are willing to push for it despite the worst economic climate for such a change in years.
Democrats in Congress are expected to push for a $15 an hour minimum wage as part of the next major COVID-19 relief bill. Though this would likely be paired with some business tax incentives to blunt the impact on small businesses, it remains a dangerous idea that could hamper the economic recovery from the pandemic.
The minimum wage has always enjoyed a disproportionate amount of focus in progressive parlance, in large part due to a pervasive belief in left-wing circles that businesses will pay workers the absolute legal minimum that they can get away with. This just isn’t the case — in January, prior to the onset of the pandemic, just 1.1 percent of full-time American workers were paid at or below the federal minimum wage.
Nevertheless, hiking the federal minimum wage to more than double the current minimum could have severe consequences for businesses still dealing with the economic consequences of the pandemic and its associated lockdowns. Even with the aforementioned proposed tax credits and a phased-in implementation, most small businesses don’t have the kinds of profit margins to absorb those kinds of payroll increases at the moment.
The traditional arguments against a $15 an hour federal minimum wage are twice as pertinent in the midst of a recession. For one, $15 an hour means different things in different areas — while the median worker makes over $35 an hour in the District of Columbia, the median Idahoan makes less than half that rate per hour.
While a New York City business may expect to pay entry-level hourly wage workers around $15 an hour already, in line with the city’s inflated cost of living, a $15 an hour minimum wage in rural areas could put some smaller operations out of business. Paired with the fact that the latest coronavirus wave appears to behitting rural communities disproportionately hard, this could prove a one-two punch for small businesses ill prepared to take even a single hit.
If we have a federal minimum wage, as opposed to states taking their own approaches to the idea, it should not be a rigid and arbitrary number. There is no one-size-fits-all wage in a diverse economy of 330 million people.
If Congress does change the minimum wage, though, there are several things they can do to blunt the negative impacts on businesses. For example, moderate increases to the minimum wage responsibly phased in over a period of time, could minimize negative impact on employment. Perhaps the optimal approach comes from a proposal by the centrist think tank Third Way, in which a federal minimum wage would be tied to regional average wages. This would result in a minimum wage which ranges from $9.80 an hour in low-cost rural areas to $13.30 in high-cost urban areas, taking into account vast differences in cost of living and likely impact on employment from place to place.
But regardless, in January, the period of time immediately following a pandemic-induced recession is not the time to saddle overwhelmed small businesses with new costs. Only when businesses are back on their feet should Congress even consider policies that could saddle them with new burdens. Until that time, it just risks putting more Americans on the unemployment rolls.
[Editor's note: This story originally was published by Real Clear Markets.]
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