Minimum wage hike increases cost of doing business for local eateries
A look at how higher wage affects the restaurant industry in Portland, Oregon.
The "Raise the Wage Act" proposed by House Democrats will be up for a vote on Thursday and certain Blue Dog Democrats have expressed concern that raising the federal minimum wage from $7.25 to $15 an hour by 2026 could negatively impact their constituents. The Congressional Budget Office’s (“CBO”) report on the effects of such an increase clearly demonstrates that their concerns are justified.
CBO’s median estimate is that a federal minimum wage of $15 would result in 1.3 million fewer workers being employed. But, CBO also found that it would raise wages for 17 million workers who would otherwise make less than $15 per hour and “potentially” 10 million workers with wages slightly above the new federal minimum. That sounds like a pretty trade off. Unfortunately, it’s not.
Notwithstanding these wage increases, CBO found that a $15 federal minimum wage would reduce family incomes $8.7 billion by 2025. This reduction would result from higher rates of joblessness, price increases for consumers, and reduced economic output (growth) all offsetting wage gains. While individuals below the poverty line would see their family incomes increase by $7.7 billion, families above the poverty line would see a decline of about $16.3 billion, or $8.7 billion more than the benefit for lower income families.
In other words, you raise the minimum wage to $15 an hour and American families have less money, brilliant. Even for progressives, a loss of $8.7 billion on a $16.3 billion investment should be viewed as a terrible result – you would think.
It would make more sense if people with incomes above the poverty line simply wrote a $7.7 billion dollar check for those with incomes below. That would eliminate the $8.7 billion loss which, as is often the case with progressive economic proposals, seems to just disappear in the economic ether. Of course, asking Americans to write that check (say through a tax increase) would have very negative political implications. So, progressives advocating for this increase simply use the old socialist trick of dressing up a growth and wealth destroying income redistribution scheme in social justice clothing.
Blue Dogs might also keep in mind that the bulk of this $16.3 billion decline, including the disappearing $8.7 billion, would come primarily from their constituents. CBO’s analysis does not include states and cities that already have a minimum wage that will rise to $15 because an increased federal minimum will not directly impact those states – or the voters in those states.
So, Democrats from the solidly blue states of California, Illinois, Maryland, Massachusetts, New Jersey and New York, and the cities of Washington, D.C. and Seattle face no political risks from supporting a $15 federal minimum wage. These states and cities account for about 30 percent of the total U.S. workforce. That means 100 percent of the CBO’s projected negative impact on jobs and family incomes will fall on the 70 percent of the workforce living outside of these six progressive states.
It might also be good for these Blue Dogs to keep in mind that CBO’s projected loss in family income is based on its median expectation of 1.3 million lost jobs. CBO projected that number could be as high as 3.7 million, nearly triple the median. At that level, the loss in family income for those earning over the poverty line would be significantly higher than $16 billion.
These Blue Dogs can take some solace from the fact that incomes for low-wage workers are already increasing thanks to robust economic growth and all indications are that they will continue to rise. Notwithstanding that the unemployment rate is near a 50 year low, more people are employed that at any time in our history and the number of people unemployed is at an 18 year low. In May, there were still 1.4 million more job openings than people unemployed.
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Not surprisingly, with that kind of demand and a limited supply, wage growth for American workers has average 3.4 percent for eight consecutive months – and without a job-killing, family-income reducing government mandate.
If you’re a Blue Dog Democrat living in a low minimum wage state, you might ask why anyone would want to mess with that.
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