Incoming President Joe Biden wants to raise the federal minimum wage to $15 per hour as part of a $1.9 trillion dollar virus relief bill. The bill also includes an increase in unemployment benefits to $400 per week as well as a moratorium on foreclosures and evictions – both until the end of September. Biden touts his plan as one that will help lift blacks and Hispanics out of poverty. Criticism of the bill has been fast and furious, especially on the issue of the extremely high federal minimum wage.
The main critique of a federally-mandated minimum wage of $15 dollars per hour simply boils down to the most obvious thing which is cost and the ability of a business to pay that type of money. The biggest expense for the majority of businesses with W2 employees (more on that later) is the employees themselves. Aside from the astronomical expense of an employee’s wage, there are also a ton of taxes and insurances that come along with it. Workman’s compensation, EEOC, OSHA, and more all add to the cost of each employee. If a person earns $7.50 per hour at a fast food joint, then the business is forced to double the wage of not just that one person, but everyone else, things get very expensive very quickly.
Advocates of higher minimum wages on a federal level tend to think that businesses unable to pay $15 per hour wages don’t deserve to exist at all. In their minds, the aforementioned way of thinking is how they stick up for the little guy. When in reality, that type of thinking sticks up the little guy. Small businesses paying employees low wages tend to have very little money. The average profit margin for a restaurant is 3% to 4%. Even big-box stores like Wal-Mart only have a 3.5% profit margin on average. Wal-Mart is able to make up for slim profit margins by selling very high volumes of goods and services. Little Johnny’s Bake Shop in Pleasantville, USA does not have the same luxury Wal-Mart has. So they may simply end up going out of business when faced with a minimum wage increase.
Big box stores like Wal-Mart, Target, Home Depot, Lowes and online giants like Amazon would advocate for a higher minimum wage before small businesses would. Since Amazon is already paying their employees $15 an hour, they can use that leverage to virtue signal legislators into forcing poor companies to do the same, which they will not be able to. The end result is an enlarging of Amazon’s pocket because they can pick up the slack that small businesses left when they get legislated out of existence. Same thing can be said for the other retail giants.
Federally-mandated wages don’t make sense anyway because regions across the country are different. Some parts of a particular state wildly differ from others in relation to available industry and cost of living. Far-western parts of Virginia closer to Tennessee, North Carolina, West Virginia, and Kentucky have very low costs of living and also very few available jobs and industry. Northern Virginia is a totally different ballgame with some of the highest incomes in the country and one of the biggest “industries” – money from the Federal Government. So why would one blanket set of economic rules be in place for both places in the same state, let alone the whole country? It does not make any sense.
The first iteration of the minimum wage in the United States did not necessarily come from a benevolent or philanthropic place. At one point in history, before the 1940s and after slavery, the white teen unemployment rate was more than the black teen unemployment rate, even among white employers. Black teenagers held the leverage of being willing and able to work for less money than white teenagers. But once the minimum wage law went into effect, there was no longer an incentive to hire a black worker over a white one. So it began to happen less and less, to the point now where the black teen unemployment rate is as high as nearly 90% in a place like Chicago.
Uneducated people may think that raising the minimum wage helps people get out of poverty but it has the exact opposite effect. More poverty happens as a result of fewer people being able to get jobs and/or start businesses from the ground level. Economic prosperity will be preserved more and more for those at the top. It also hastens automation and offshoring. Why pay an unskilled American worker $15 per hour to do a job that someone in China or India will do for a fraction of the cost if at all possible? Why hire a cashier or another job that can be automated if the machine costs less than a human being would at the rate of $15 per hour? Advocates of a higher minimum wage should think twice about lending their support to something that simply does not work the way they think it should.
SOURCES:
Joe Biden Unveils $1.9 Trillion Spending Plan: Includes $15 Minimum Wage – The Tatum Report
Biden stimulus plan: Details on checks, unemployment, minimum wage announced
Joe Biden wants to use coronavirus relief to raise federal minimum wage to $15 | Salon.com
Biden To Call For Raising Federal Minimum Wage To $15 An Hour : NPR
Biden Urges More Than Doubling Minimum Wage to $15 an Hour (2)
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