Five Reasons Why Biden’s $15 Minimum Wage Hike Would Be Terrible for the Economy

Five Reasons Why Biden’s $15 Minimum Wage Hike Would Be Terrible for the Economy

One of Joe Biden’s first priorities as president was to raise the federal minimum wage to $15 an hour, cementing himself as a champion of progressive values. Coming into office amid a pandemic offered Biden a perfect opportunity to accomplish the goal, opting to add the proposal to his stimulus package in hopes that the measure would pass with little resistance.

Republicans have opposed an increase in the minimum wage, and have fiercely resisted Biden’s new proposal. While many (wrongly) believe it is common sense that low wage workers deserve more money, Republicans (correctly) believe such a move could be disastrous for the economy.

Here’s the top five reasons Biden’s doubling of the minimum wage could be bad policy.

1. Minimum wage hikes lead to more automation.

Some jobs that are currently held by low-skilled workers offer them an opportunity to gain valuable job experience, even though they offer their labor at a tiny cost. But what if the government forced businesses to pay those low-skilled workers more money? Some studies say those workers could simply be replaced with automated technology.

From Forbes:

A new study finds that the fight for a $15 minimum wage could hurt the very workers it is intended to help. Economists Grace Lordan and David Neumark find that “increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed.

Their findings seem to confirm speculation that the fast food industry, a key industry targeted by minimum wage activists, is responding to wage hikes around the country by replacing cashiers with self-service kiosks and other kinds of robots. Wendy’s, for instance, plans on placing these touch screen ordering devices in a 1,000 of its restaurants.

2. Minimum wage increases hurt small businesses more than major corporations.

While large well-known corporations such as McDonald’s and Walmart typically draw ire for the wages they offer workers, these mega-corporations can actually benefit from a rise in the federal minimum wage. That’s because unlike smaller businesses, mega corporations are more easily capable of absorbing short-term losses while their smaller competitors fight to stay in business.

From Politico:

With large corporations like Amazon and Bank of America raising minimum pay and McDonalds no longer lobbying against minimum-wage hikes, “life in the opposition is getting lonelier,” Lydia DePillis reports for CNN Business. “We’re playing defense on this one, to state the obvious,” Jon Kurrle, vice president of federal government relations at the National Federation of Independent Business, told CNN. “A larger company can absorb costs in a way that a smaller business can’t, and also make technology investments in a way that not all small businesses can.”

Amazon was the most recent corporate giant to make this strategy clear, opting in 2018 to raise its minimum wage to $15 an hour before beginning a lobbying effort to encourage the federal government to do the same to all of its competition.

3. A majority of economists disagree with the proposal.

A survey U.S. based economists found that 72% of them oppose a federally mandated $15 minimum wage. 

A majority of economists believe that such a measure would hurt youth employment (83%) and adult employment (52%), reduce the number of jobs available (76%), make it harder for entry-level employees to find work (80%), and make it difficult for small businesses to survive (67%).

4. Higher minimum wages mean higher prices for consumers.

With many businesses operating on thin profit margins, a sudden spike in the cost of their labor means there’s only one place to pass the cost… to consumers. That reality means that even though some people are making more money, consumers overall are forced to spend more on the price of goods.

From the Foundation for Economic Education:

The limited empirical evidence consistently indicates that increases in the minimum wage lead to increases in prices of goods and services produced with low-skilled labor.

5. Not all every location shares the same economic realities.

While a $15 minimum wage might seem like no big deal in some areas of the country, such a policy would have a dramatic effect on the labor markets of other areas.

One example that perfectly highlights this reality is the difference between incomes in Washington, D.C. and the state of Mississippi

In the nation’s capital, where the minimum wage law is being debated, the median wage is $71,690 per year. That equates to just under $34.50 per hour for an employee that works 40 hours per week.

The median wage in Mississippi, meanwhile, is $30,580, which is just over $14.50 an hour for a full-time worker. That means a federally mandated minimum wage is less than half the median wage in Washington D.C., but more than the average wage of a worker in Mississippi.

Simply put, the United States is a vast country where a one size fits all approach doesn’t always make sense. What works outside the doors of the White House might not work for those who go to work in Jackson, Mississippi.

The reasons above highlight why Republicans offered fierce resistance to Biden’s plan, which ultimately led to its rejection from his stimulus package. While the overall package seems destined to pass through the budget reconciliation process, the minimum wage increase portion of the bill was voted down by a majority of Senators.


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