The debate about raising the minimum wage is gaining momentum as lawmakers on both sides of the aisle weigh the benefits and consequences of raising the lowest wage to $ 15 an hour.
“We want Americans to increase wages, we want more jobs created – not less – and we want businesses to thrive, especially the small businesses that are the backbone of our economy,” said Rep. Dean Phillips, D-Minn., Said Thursday at a hearing convened by the House Committee on Small Business.
Late last month, Democrats introduced the 2021 Raise the Wage Act, which would gradually increase the federal minimum wage from $ 7.25 to $ 15 by 2025. The legislation is currently included in the House version of the $ 1.9 trillion support package that’s scheduled for a vote Friday, but it’s unclear whether that provision will pass the Senate.
Another option, announced Tuesday by Senators Mitt Romney, R-Utah, and Tom Cotton, R-Ark., Would be to increase the federal minimum wage to $ 10 an hour by 2025 and then automatically increase it every two years to match to come up with the rate of inflation. However, the bill also requires employers to use e-verification to ensure that companies do not employ illegal immigrants.
According to the Bureau of Labor Statistics, about 1.1 million hourly workers earned wages that were at or below the minimum wage last year. But there are many more millions of workers who earn just above the minimum wage.
According to the Congressional Budget Office, an increase in the federal minimum wage to $ 15 an hour would increase wages for 17 million American workers. Another 10 million additional workers who earn just over $ 15 an hour would be affected.
Meanwhile, the $ 10 increase proposed by Romney and Cotton would only increase wages for 4.9 million workers, or 3.2% of the workforce, according to a report from the Economic Policy Institute released Thursday.
Will the legislation deal another blow to small businesses?
There is no doubt that businesses around the world have been dramatically affected by the Covid-19 pandemic, and that is especially true for small businesses in the US. About 53% of companies with fewer than 50 employees surveyed reported that the pandemic had a moderate to severe impact. on their business according to the CBIZ Main Street Index.
In the face of that struggle, some lawmakers feel that now is not the time to increase business costs for businesses. “A federal, nationwide mandate to raise the minimum wage to $ 15 an hour will bring us back to where we were months ago – US jobs destroyed, small businesses forced to close their doors and savings lost. I can’t think of anything. more devastating at a time when our small businesses are barely back on their feet, ”said Rep. Elizabeth Ann Van Duyne, R-TX.
In addition, many opponents of the $ 15 minimum wage fear it will lead to job losses and business closures. According to the CBO report, raising the federal minimum wage to $ 15 would cut US employment by 1.4 million, or about 0.9%.
But advocates of the wage increase say raising the federal minimum to $ 15 an hour will not only benefit workers but also help small businesses by increasing consumer spending, decreasing sales, and improving productivity and customer satisfaction. stimulate.
But the reality can be complicated, as shown by companies already paying above the minimum wage. Such is the case for pizza chain Punch Pizza, based in St. Paul, Minnesota, which was recognized in the state of former President Barack Obama’s union in 2014 for paying its employees above the minimum wage and currently pays an average of $ 13 an hour. for the starting wage. Established workers earn an average of $ 15 an hour, plus an additional $ 5 in tips, co-owner John Puckett said at the Congressional hearing on Thursday.
Punch Pizza lost more than $ 1 million in revenue last year and will likely still lose tens of thousands of dollars a month this winter. “We expect to lose that until we can safely reopen our dining areas,” Puckett says.
While paying more employees than the minimum wage is a priority, it means the company is giving up profit margins in the short term, as Punch Pizza’s labor costs are about 40% of sales, Puckett says. And St. Paul is in the process of gradually increasing the minimum wage to $ 15 an hour by 2022.
“We’re trying to find out,” Puckett says of the impact of the rising minimum wage on his business.
To counter rising labor costs, Punch Pizza has focused on ways to grow sales, including expanding to takeout during the pandemic. “We’ve been able to survive on 100% takeout and we think if we get out of the pandemic we can keep more of that business and hopefully stay ahead of the minimum wage,” says Puckett.
Unintended consequences for families
While raising the minimum wage could potentially create more purchasing power for low-income Americans, it would also increase the cost of childcare in the US by an average of 21%, a new study from the Heritage Foundation finds. It would add an additional expense of $ 3,728 per year for a family with two children because of the higher labor costs, the study said.
According to a recent report from the Center for the Study of Child Care Employment at the University of California, Berkeley, the average early childhood worker earned $ 11.65 per hour in 2019.
“One of the biggest consequences [of the $15 minimum wage] childcare costs, ” Rachel Greszler, a researcher in economics, budget and law at the right-wing Heritage Foundation, said Thursday.
“For single mothers, it is not an option whether or not to work, and yet [they would] face thousands of dollars more in childcare costs each year. That will get these women in trouble, ‘says Greszler.
Who benefits from a higher minimum wage?
One of the arguments against raising the federal minimum wage is that many of the workers who earn $ 7.25 are part-time teenagers and college students who earn pocket money with a side job.
It’s true; many of the workers who earn at or below the federal minimum wage of $ 7.25 an hour are younger. Before the pandemic, about 3.8% of hourly workers between the ages of 16 and 24 made $ 7.25, compared to 1% of workers over the age of 25, according to the BLS.
Still, it is “utterly wrong” to allow the minimum wage increase to $ 15 an hour to benefit only teens, said Heidi Shierholz, a senior economist and policy director at the left-wing Economic Policy Institute.
That’s because there are many full-time, adult hourly workers who earn just above the minimum wage, but still make less than $ 15 an hour. Only about 1 in 10 of those who would benefit from a $ 15 minimum wage are teenagers, Shierholz says.
In fact, EPI’s research shows that more than half of those who would benefit from a federal minimum wage of $ 15 are workers between the ages of 25 and 54, the majority of whom are women. More than a quarter of these employees have children.
“Raising the minimum wage has been long overdue. Workers receiving the current federal minimum wage today are paid 30% less in inflation-adjusted terms than their counterparts 53 years ago,” said Shierholz.
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