An increase in the federal minimum wage is due, but the plan approved by the U.S. House of Representatives is too aggressive and has downsides.
The House OK’d the first increase since 2009, with the Raise the Wage Act hiking the minimum wage from $7.25 to $15 over six years.
Leaders such as Congressman James Clyburn praised the decision, citing estimates that the increase would affect 33 million Americans, including 118,000 workers in his 6th Congressional District.
It’s hard to argue with the reasoning of Clyburn and other proponents in saying, “All American workers deserve to earn a livable wage that will provide the basic necessities for themselves and their families. In my district, this landmark legislation would increase the earnings of a full-time minimum wage worker by $3,900 annually, lifting many households out of poverty.”
But the increase would have negative consequences, notably a loss in jobs. The Congressional Budget Office estimates the Raise the Wage Act would cost 1.3 million to 3.7 million jobs.
And there are others.
Writing for InsideSources.com, Ryan Young, senior fellow at the Competitive Enterprise Institute and author of the forthcoming study “Minimum Wages Have Tradeoffs: Unintended Consequences of the Fight for 15,” points out:
• Workers are paid more than just wages, including non-wage compensation such as employee discounts, free meals or parking, flexible hours, insurance, tuition assistance and more. One way employers will compensate for the wage hike is cutting non-wage pay. “Some workers might see a higher paycheck, but they wouldn’t necessarily be better paid.”
• Wages are taxed while much non-wage compensation is not. A restaurant that allows employees to have free or discounted food on the job can easily be giving them the equivalent of several hundred dollars of untaxed income per year. Converting that benefit to wage income instead would subject the employees to the 15.3% FICA tax for Social Security and Medicare and likely sales taxes, plus potential state and federal income tax liability.
• Price increases are inevitable to cover the cost of the wage increase. A survey of 574 New York City restaurants found 87% of respondents planned to raise menu prices in response to higher minimum wages. Three-quarters, 75%, planned hour cuts, while 47% planned staff cuts. Affected employees would potentially lose not only both wage and non-wage pay but would have fewer tip-paying customers due to higher prices.
• The increase is another setback for small business. Big businesses such as Walmart, Amazon and McDonald’s can absorb higher costs and automate some jobs, while a mom-and-pop store or restaurant might not be able to.
One Democratic lawmaker not supporting the Democrat-sponsored Raise the Wage Act was 1st District Congressman Joe Cunningham of Charleston.
Consider his reasoning: “It is clear that the minimum wage is far too low in South Carolina. I believe we must raise the minimum wage to double digits. But a bill that would cause 3.7 million Americans to lose their jobs and eliminate the tipped wage – harming tipped employees and small businesses that make up the backbone of the Lowcountry’s service economy – is not something I can support.
“I did not make this decision lightly. Over the last six months, I’ve spoken with tipped workers, restaurant managers and small business owners who expressed real fear that this legislation would result in reduced employee hours, price hikes, job losses, and force businesses to close entirely. More than doubling the minimum wage and increasing the tipped wage sevenfold would place a burden on Lowcountry businesses that they could not sustain.”
With the Senate unlikely to approve the House-passed increase in the minimum wage, we see Cunningham’s approach as the way to go.
He concluded: “… There is a way to raise the minimum wage without raising prices and putting jobs in jeopardy. We must go back to the drawing board and work together as Democrats and Republicans to find a compromise that involves buy-in from the business community.”