January Jobs Gain Threatened by Prospect of Minimum Wage Hike

The Labor Department’s report Friday that the unemployment rate was 6.3 percent in January, down 0.4 points from the previous month, is good news that nevertheless underscores the fragility of the nation’s economy. After nearly a year of mostly month-to-month gains, the unemployment rate is still well above the pre-pandemic rate of 3.5 percent from last February.

January’s gains came mostly from white-collar and higher-skilled professions, while losses continued in the leisure and hospitality industry, down 61,000, and retail trade, down 38,000. Leisure and hospitality’s losses were not worse only because it had already had a brutal December, losing a staggering 536,000 jobs. Retail was buoyed somewhat by Christmas shopping, having gained 135,000 jobs, but has since lost a quarter of those gains.

These are the economic sectors that would be affected the most by the $15 minimum wage increase currently being debated in Congress. Lawmakers in favor of the increase may think that they’re ensuring these workers will get a raise, but the jobs numbers show the sensitivity in these industries to changes in the economy. Employers work on thinner margins and cannot easily absorb things like higher labor costs easily. In tough times, they respond by laying off workers, hiring fewer people, or cutting back on hours. Many businesses close down for good.

The higher minimum wage considered by Congress will mean fewer jobs and opportunities for those workers, even given the fact that it is being phased in over five years. Yes, eventually the COVID-19 epidemic will end and the economy will recover. A higher minimum wage will, for many smaller businesses, effectively make it as though the epidemic never went away.

Related analysis:

The Dark Side of the Minimum Wage

Federal Minimum Wage Hike to $15 an Hour Will Hurt Small Businesses, Lead to Lost Jobs