Federal Minimum Wage Hike Will Hurt Everyone
The announcement this week by Sen. Bernie Sanders has renewed the goal of the modern labor movement to double the federal minimum wage from $7.25 to $15. Back in 2019, Representative Robert Scott (D-VA-3) introduced the Raise the Wage Act that, among other things, would have seen the minimum wage increase to $15 an hour by 2025. While advocates of raising the federal minimum wage to $15 state say it will lead to 17 million Americans getting a pay raise and take millions out of poverty, they fail to understand the damage the measure will cause in terms of causing needless job losses that disproportionately affect the most vulnerable in society, raise prices and hurt small businesses.
The negative externalities of raising the minimum wage to $15 are not abstract, but they can be seen most profoundly in Seattle, a city that implemented a $15 minimum wage back in 2014. A study by the University of Washington found that after the minimum wage was increased, the city lost 3.5 million work hours per quarter and saw “the number of low wage jobs declines by 6.8%, which represents a loss of more than 5,000 jobs.” The same study also found that those on minimum wage also saw their incomes decline by “$125 per month” as a result of fewer hours worked.
The most significant flaw in the plan to raise the federal minimum wage to $15 per hour is that it will cause unnecessary job losses that will disproportionately affect single women and teenagers with limited work experience. In its study of raising the minimum wage to $15 an hour, the Employment Policies Institute (EPI) estimated that over two million jobs could be lost, with 32.5% of job losses affecting those in the 16-19 age group. EPI also estimated that 1.2 million women could lose their jobs as a result of the wage increase as they are more likely to work in a minimum wage job than men.
Women would be particularly vulnerable to job losses as a result of increasing the minimum wage to $15 per hour because, according to the National Women’s Law Center they make up “two-thirds of the nearly 20 million works in the low wage workforce,” with single women making up 43% of the low-wage workforce. Understanding the disproportionate effect of raising the minimum wage would cause to women should show policymakers, in no uncertain terms, why it will only serve to increase economic insecurity.
Aside from causing unnecessary job losses, increasing the minimum wage to $15 per hour will also harm small businesses. Highlighting the importance to the overall economy, the Small Business Administration has noted that small businesses “account for 44% of U.S. economic activity.” In its response to the Raise the Wage Act, The National Federation of Independent Business warned that small businesses would be disproportionately harmed by the wage increases, largely because they are unlikely “to have the cash reserves or profit margins to absorb the increase in labor costs than larger businesses.” Unable to absorb these costs, small businesses will be forced to cut back on their workforce and hours, raise prices to offset the increased cost of labor, or close permanently.
As a result of this, consumers will not only be facing higher prices for goods and services, but they will also be left fewer choices in where to shop and large companies will have greater power to dictate the prices of goods and services.
These concerns are not abstract but can be witnessed in states, cities, towns that have implemented a $15 minimum wage. A study of 4,000 restaurants in places that had a $15 minimum wage found that “71% have attempted to pass along the rise to consumers” and 1 in 10 have been forced to close permanently.
While lifting Americans out of poverty is an admirable policy goal, and one that has been around for a while, it is clear that raising the minimum wage to $15 is not an effective solution because of the harm it will cause to both workers and consumers. If Congress wants to lift millions out of poverty, it should support measures that enhance access to the workforce and allow small businesses to thrive.
Edward Longe is a research associate at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal.