Federal Minimum Wage Hike will Force Cuts Elsewhere

With the Democrat-controlled Congress aiming to imminently pass a plan to increase the federally-mandated minimum wage from $7.25 to $15 per hour nationwide as part of a $1.9 trillion Covid-related spending bill, CEI experts warn that foisting that labor cost increase on employers will force them to make painful cuts elsewhere.

Statement by Sean Higgins, CEI Research Fellow

The Raise the Wage Act will make the federal minimum wage $15 an hour because “fight for 15” is a catchy slogan, not because there is definitive economic research saying that is the optimal level to help the working poor. The best the legislation’s fans can say is that they don’t think $15 will hurt that much — evidence contradicted by the Congressional Budget Office report that the legislation will eliminate 1.4 million jobs. The workers who do keep their jobs would likely get fewer hours and benefits and face higher prices as employers adjust. Congress could do better if it asked, “How do we help ensure an economy that creates jobs paying more than the minimum wage?”

Statement by Ryan Young, CEI Senior Fellow

Congress should keep two things in mind about raising the federal minimum wage: regional differences and tradeoffs. Midtown Manhattan and rural Kansas have different costs of living. They should not have the same minimum wage. Second, the tradeoffs to minimum wages go beyond job losses. Workers also make non-wage pay, which employers will cut to offset some of the wage increase. That includes things like insurance, free food or parking, paid time off, and other perks. These non-wage cuts will reduce the impact of any wage increase.

Related:

Minimum Wages Have Tradeoffs: Unintended Consequences of the Fight for 15

The problem with a one-size-fits-all federal minimum wage hike