$15 Minimum Wage Could Cost Jobs, Economists Say

Others claim raising the federal minimum wage could help full-time workers support a family of four.

February 04, 2021

WASHINGTON—President Biden’s proposal to raise the federal minimum wage to $15 an hour aims to lift many low-wage workers out of poverty, but some businesses and economists warn the wage hike could cost jobs as the U.S. recovers from the pandemic, the Wall Street Journal reports.

Biden’s plan would more than double the wage in incremental steps over four years, noting that at $15 an hour, full-time hours could support a family of four above the poverty level. The president’s advisers say raising the wage from the current $7.25 an hour, where it has stood since 2009, would demonstrate gratitude toward retail employees, who continue to work during the pandemic, and boost the economy because low-wage workers would have more to spend.

Some large employers have done well during the pandemic, according to Bharat Ramamurti, deputy director of the National Economic Council. “The compensation for their employees hasn’t necessarily reflected that,” he said. “Raising the minimum wage is one way of giving workers a more fair slice of the revenues that they help generate. No matter where you work in America, if you work full time or 40 hours a week, you should not live in poverty. A $15 minimum wage accomplishes that.”

While several states, including California, Florida and Massachusetts are on a path to reach a $15 minimum wage in coming years, a nationwide minimum-wage increase requires congressional approval. Economists are divided on the effects of the $15 minimum wage. Some have studied the various state and municipal increases and found little job loss relative to nearby areas with lower minimums. But others say job losses tied to a $15 minimum wage could be more severe, especially in states with a low cost of living.

The impact would be felt the most in rural states, such as Mississippi, opponents say. Half of all workers there earned $15 an hour or less in 2019, according to the Labor Department.

Opponents also say that policy makers should be concerned with job losses in low-wage industries, such as the leisure and hospitality sector, which lost 3.8 million jobs in 2020. More than 37% of workers earning the federal minimum wage in 2019 were employed in foodservice, hotels and other parts of the hospitality sector, reports the Labor Department. Retail workers accounted for nearly 23% of minimum-wage earners, and education and health employees, including home health aides, represented 14%.

“It’s a potentially catastrophic policy error,” said Kevin Hassett, former economic adviser to President Trump. The pandemic pushed many small businesses to the brink of bankruptcy, and many restaurants and other companies are holding on, waiting for the economy to open up later this year. A minimum-wage increase would cut into those expected profits and cause businesses to close, he said.

Because low-wage workers have been disproportionately harmed by the pandemic, Hassett said that the government should support them through direct payments rather than mandating that businesses raise wages.

The nonpartisan Congressional Budget Office found in a 2019 study that raising the federal minimum wage to $15 an hour by 2025 could cost 1.3 million Americans their jobs. The same study found the higher level could boost the pay of about 27 million workers and lift 1.3 million Americans out of poverty. Many businesses support increasing the minimum from $7.25 but don’t endorse a $15-an-hour level. While 29 states have raised their minimum wages above the federal floor, worker advocates say a higher mandate is also needed because employees in large cities such as Atlanta, Houston and Philadelphia can be paid as little as $7.25 an hour.

Jonathan Meer, an economist at Texas A&M University, said a $15 minimum wage will push businesses to replace workers with self-checkout kiosks and other technology and encourage employers to pay workers off the books. “In rural areas of the country, people will still be working, but it won’t be for $15 an hour,” he said. “They’ll be paid under the table and therefore forgo unemployment insurance, workers’ compensation and not accrue Social Security benefits.”