Joe Biden wants to raise the federal minimum wage from $7.25 to $15.00 an hour.
Although raising the minimum wage sounds good in theory—because who doesn’t want to make more money?—drastically raising the minimum wage would actually lower wages overall and lead to massive job losses, especially hurting small businesses during a time when they can least afford it.
Raising the minimum wage increases the price of labor, which means that employers will either be forced to reduce the hours of their employees or, more likely, have to eliminate positions entirely.
The cost of minimum wage increases will also hurt consumers because producers will be forced to pass the cost on to customers.
North Carolina State professor Walter Wessels wrote, “Minimum wages reduce employment. Studies have shown that for every 10% increase in the real minimum wage, teenage employment falls between 1% and 3%. “
When East Germany was integrated into West Germany, wages in East Germany were set far in excess of the productivity of East German workers. The result was a massive loss in jobs, resulting in over 2 million workers moving to West Germany to get jobs.
In his classic book Capitalism and Freedom, the great economist Milton Friedman wrote the following about minimum wage laws: “The state can legislate a minimum wage rate. It can hardly require employers to hire at the minimum all who were formerly employed at wages below the minimum….
The effect of the minimum wage is therefore to make unemployment higher than it otherwise would be. Insofar as the low wage rates are in fact a sign of poverty, the people who are rendered unemployed are precisely those who can least afford to give up the income they had been receiving, small as it may appear to the people voting for the minimum wage.”
Rachel Greszler, a research fellow at The Heritage Foundation wrote the following about the negative consequences of raising the minimum wage for NBC News:
“When New York City increased its minimum wage by $2, from $13 to $15 (much smaller than the proposed $7.75 federal increase), 86 percent of restaurants reported increasing their prices in response. A Heritage Foundation report found that a $15 minimum wage would cause fast-food prices to increase by 38 percent. Grocery prices would also rise.
Higher prices also mean lower demand. Forty percent of restaurants reported losing repeat customers as a result of price increases. And these minimum wage price increases hit lower-income earners hardest because they spend a higher portion of their incomes, often on items that would experience minimum-wage-induced price increases…
While a pre-pandemic Congressional Budget Office report on a $15 federal minimum wage estimated that it would boost income for some 17 million people, it would also cost some 1.3 million people their jobs.
Some studies have found higher job losses. An analysis of the economic impact of a $15 minimum wage in the wealthy Washington suburb of Montgomery County, Maryland, estimated that it would cause 1 out of every 3 low-wage jobs to disappear from the county.”
As of this writing, Congress hasn’t passed Biden’s proposed minimum wage. For the good of the economy, let’s hope it stays that way.