A $15 Minimum Wage Doesn’t Belong in a COVID-Relief Plan

J oe Biden has repeatedly promised to unite the country and bring Americans from across the political spectrum together to address the grave problems we face as a nation. The inclusion of a partisan poison pill in the sweeping $1.9 trillion COVID-19 relief proposal that the president-elect unveiled last week is another reminder that he may have an unusually divisive notion of unity.

Alongside some relatively uncontroversial funding for vaccine distribution, COVID testing, and the like, Biden’s proposal includes eminently debatable but at least “on-topic” funding for mass “stimulus” checks, expanded unemployment benefits, and (to give the president-elect the benefit of the doubt) a bailout for state and local governments. Yet it also includes a provision that would more than double the federal minimum wage, raising it from $7.25 to $15 nationwide.

Such a provision in no way, shape, or form belongs in a COVID-19 relief package. Whether you support or oppose it, it’s hard to argue that this hike has more than a tangential relationship to the problems caused by COVID-19.

It would be wrong for Republicans to slip pro-life or pro-gun policy reforms into an ostensibly emergency economic legislative package. And it’s similarly cynical for Democrats to sneak left-wing policy priorities into legislation they’re selling as must-pass emergency relief. But even setting this objection aside, the inclusion of a $15 minimum wage in Biden’s plan is badly flawed on the merits alone.

Many states either set their state’s minimum wage rates at the federal rate or have no separate state minimum and simply rely on the federal rule (which will then apply to all but the smallest and most local of businesses). Others set their rates slightly above the federal mandate but still far below $15. In fact, no state in the country yet has a $15 statewide minimum wage, although some are scheduled to phase one in and several large cities have introduced a $15 (or higher) rate.

Making the switch would shock labor markets.

“In 35 states, the median hourly wage was less than $20,” wrote American Enterprise Institute economist Michael Strain in an article for Bloomberg in October. “Setting a minimum wage so close to the median wage would price many workers out of the labor market. Indeed, in 47 states, 25% of all workers earned less than $15 an hour.”

Think of it like this: If a law passed tomorrow mandating that cars had to be sold for close to the current median price, what would happen to all the cars on the market currently priced for far less? A significant number simply wouldn’t get sold, because they’ve been forcibly priced above what people had been prepared to pay for them or, for that matter, what they could afford.

Even in the best of times, raising the wage floor for so many workers to a level that nearly approximates the median wage would be a drastic shock for businesses and the labor market. Employers would respond to such an artificial price hike, like anyone would, by reducing the quantity of labor they demand. (Put another way, they would hire fewer people, something made even easier by ever more widespread automation.) In a 2019 survey, the nonpartisan Congressional Budget Office estimated that a minimum-wage increase to $15 by 2025 would lead to 1.3 million fewer jobs nationwide.

Suffice it to say, right now is not the best of times.

Small businesses have been crushed by COVID-19 and its attendant restrictions, as well as by riots and protests. At least 100,000 small businesses have permanently closed their doors. And nearly 60 percent of small-business owners don’t expect their enterprise to survive until June 2021, according to a December survey.

And all of this is before Biden’s massive proposed minimum wage hike. The CBO concluded that it would have strained businesses and potentially eliminated millions of jobs in the normal pre-pandemic scenario. What’s more, the loss of 1.3 million jobs was a median estimate. The CBO estimated that “the change in employment would be between about zero and a decrease of 3.7 million workers.” There’s little doubt this negative fallout would be even more pronounced right now.

After all, payroll is often one of a company’s biggest expenses, and a massive spike in labor costs would certainly push many struggling small businesses over the brink. Despite the policy’s benign intentions, it would do no good for the millions of workers left unemployed as a result.

“The timing is terrible and the tradeoffs are not worth it,” Competitive Enterprise Institute economist Ryan Young said of Biden’s plan. “Small businesses often have a hard time making payroll as it is, with bills and rent still piling up amid COVID-related slowdowns. A higher minimum wage would do no good for the workers who would be let go because of it.”

There is little doubt that many of Biden’s supporters earnestly believe a $15 minimum wage will help uplift struggling Americans. But as the Nobel Prize–winning economist Milton Friedman famously quipped, “one of the great mistakes is to judge policies and programs by their intentions rather than their results.” And evaluated from this perspective, Biden’s push to force through a $15 national minimum wage in the name of COVID-19 relief fails woefully.