Opinion: $15 minimum wage would ruin economic recovery
Author: Michael Saltsman and Rebekah Paxton
Publication Date: October 2020
Newspaper: The Detroit News
The coronavirus pandemic left millions jobless. Instead of getting Americans back to work, Democrats propose reviving the economy by more than doubling the minimum wage. A new analysis shows why this strategy will backfire.
This unprecedented increase to the minimum wage is a key component of the Raise the Wage Act, a bill that passed in the House of Representatives just last year. The components of the legislation, which were included in the Democratic platform and have been endorsed by Joe Biden, would raise the federal minimum wage by 106% and raise the tipped minimum wage by more than 600%, to equal the regular minimum. (In Michigan, the percentage increases would be somewhat lower, given that the state’s wage rate is above the federal requirement.)
In a newly released study, economists Bill Even (Miami University) and David Macpherson (Trinity University) build on a methodology developed by the nonpartisan Congressional Budget Office to estimate the costs of $15. They find that, if a $15 an hour minimum wage were enacted, over two million minimum wage workers would lose their jobs by 2027. Michigan would be particularly hard-hit: A $15 minimum wage would cost the state nearly 60,000 jobs.
Forty percent of the policy’s consequences would be for workers under the age of 19, and over 60% would be jobs held by women. Nearly half would come from the already-struggling hospitality industry, including restaurants and bars. The act is particularly bad news for tipped workers: nearly one-third of tipped jobs that would be affected by wage increases will be lost. That adds up to more than 690,000 fewer opportunities nationally to earn substantial tip income.
This is why thousands of tipped workers have rallied against prior increases in the tipped wage. In New York, a Facebook group called Supporters of the Tip Credit in New York grew to more than 22,000 members, as servers and bartenders successfully rallied against a proposal to eliminate the tipped wage. In Maine, restaurant workers testified for 12 hours in favor of restoring the tipped wage — a request that received bipartisan support in the state legislature. And in Michigan, tipped workers filled the state Capitol to oppose a ballot measure backed by out-of-state interests to change the tipped wage.
This latest research confirms what we already know: While minimum wage hikes may increase wages for some, they typically reduce overall payroll, hours, and job opportunities for others.
In Seattle, University of Washington researchers found the rapid rise in the minimum wage increased the rate of business exit (closing or leaving the city) by 13%. New York City experienced two consecutive years of job losses in its full-service restaurants after hiking minimum wages. In San Francisco, a Harvard study found each $1 increase in minimum wage correlated with 14% increased likelihood of restaurant closures.
These losses occurred prior to the pandemic, when the restaurant industry lost more than 5.9 million jobs. Today, countless businesses are on life support, and will undoubtedly be forced to shut down operations for good.
Regardless of who takes the Oval Office in January, they’ll be tasked with a tall order to fully restore our economy. That starts with making it easier to keep businesses open and employees on the payroll. Proposals to increase the minimum wage to $15 would do just the opposite.