It’s no secret that the coronavirus pandemic has taken a toll on the financial well-being of millions of businesses and individuals. There are roughly ten million less jobs in the U.S. today than there were pre-pandemic and recent data suggests the labor market is struggling to bounce back after lockdown measures were imposed in many states to control the outbreak. This week, total initial jobless claims for the pandemic reached a figure more than twice the size of Afghanistan’s population. Some experts state the jobless claims data highlights the need for Congress to act on President Biden’s $1.9 trillion stimulus proposal, which includes a bill that would more than double the federal minimum wage if passed.
The Raise the Wage Act of 2021, which is being considered as part of President Biden’s $1.9 trillion stimulus package, would gradually raise the federal minimum wage from the current hourly rate of $7.25 to $15 an hour over four years. The first increase would occur the day a law becomes effective and raise the wage floor to $9.50. The wage floor would then rise gradually over four years until the $15 minimum is reached. After reaching the $15 minimum, the rate would be reviewed annually and adjusted based on changes to median hourly earnings of all employees.
Supporters of raising the minimum wage argue that doing so would help lift America’s lowest-wage workers out of poverty and give them more spending power. The argument is one that has long been backed by labor organizations, such as the Service Employees International Union (SEIU). The SEIU led the “Fight for $15” movement, which emerged in late 2012 from a New York gathering of fast-food workers. The Fight for $15 movement has been successful in pushing governments and large companies to pay higher wages over the past few years. For example, two of the most populous states, California and New York are now on the path to reach a $15 an hour minimum, as are more than a dozen cities, including Seattle and Washington, D.C. Large employers like Aetna Inc. and Wal-Mart Inc. have also pledged to raise starting pay for workers. While higher wages may provide low-wage workers some temporary relief, the long-term consequences of enforcing a $15 federal minimum wage would likely far outweigh any short-term benefits.
Basic economic theory says that when prices increase—wages in the case of labor—demand for that product falls, meaning fewer workers are hired or hours are cut. Higher wages increase the cost of producing goods and services. If the minimum wage were increased to $15 an hour, businesses would pass some of those increased costs on to consumers in the form of higher prices, resulting in reduced demand. Employers would consequently produce fewer goods and services, and as a result, they would tend to reduce their employment of workers at all wage levels. A study conducted by the Congressional Budget Office (CBO) in 2019 found that raising the minimum wage to $15 an hour by 2025 would cost 1.3 million workers their jobs. If the same study were conducted in 2020 amid the pandemic, the losses would be far worse.