January 28, 2021
By Jennifer Tiedemann
The proposal of a $15 federal minimum wage has resurfaced, and it couldn’t come at a worse time for millions of struggling Americans.
At first consideration, such a statement might seem counterintuitive. After all, a higher minimum wage means many Americans will get paid more, right? But it’s not so simple. Let’s go to the CBO: In July 2019, the Congressional Budget Office estimated that should the federal minimum wage be raised to $15 per hour by 2025 (just as the just-introduced Raise the Wage Act proposes), the result could be as many as 3.7 million lost jobs.
And of course, much has happened since the CBO made that estimate. The catastrophic economic effects of the COVID-19 pandemic have now stretched on in the U.S. for nearly a year. State lockdowns have put countless businesses at the mercy of government mandates, and as a result, just about everyone knows of a store or a restaurant they loved that has shut forever during COVID-19. And the impacts go far beyond anecdotal evidence: The Harvard-based data project TrackTheRecovery.org found that as of the end of December 2020, the number of small businesses open in the United States decreased by nearly 30% compared to January 2020. That’s almost one-third fewer small businesses in just 12 months—small businesses that created jobs for thousands of Americans.
And who has been hit the hardest by job losses during the pandemic? Not surprisingly, it’s low-income workers: Many low-wage workers tend to work in sectors hit especially hard by the pandemic, like food service and retail. TrackTheRecovery.org finds that for Americans making less than $27,000 a year, employment rates are about 20% lower than pre-pandemic levels—while employment levels for those making more than $60,000 a year are back to where they were before COVID-19.
Now, enter the $15 federal minimum wage proposal just introduced in Congress: Even our quick look at business and employment data reveals how disastrous the results of this plan could be for many Americans and for the small businesses that currently employ them. When New York City’s minimum wage was raised to $15 per hour at the end of 2018, many businesses struggled to adjust, forced to cut employee shifts or nix plans to hire additional staff. But in the COVID era, when so many businesses are on the brink, a prospect of a $15 federal minimum wage seems particularly devastating. As the New York example shows, a steep raise in the minimum wage can force many small businesses to cut staff hours, rethink plans for their future, or even permanently close their doors.
One of the stated objectives of the Raise the Wage Act is that it would “accelerate our economic recovery and build back a better economy.” But even a cursory look at the data shows that such a claim is laughable. What it would do, though, is result in the death of more of America’s small businesses—and the loss of millions of jobs—and exacerbate a growing gap between high-wage and low-wage employment levels.
Some Americans may cheer at the fact that a $15 federal minimum wage is back on the table, but for the business owner already facing empty tables at her restaurant, that wage increase may make the final decision between whether to remain open or to close for good. And it will be an enduring tragedy for American business owners and employees alike.
Jennifer Tiedemann is the Deputy Communications Director at the Goldwater Institute.