Biden’s $15 Minimum Wage Ignores Basic Economics

, John Whitmore, Leave a comment

As President Biden settles into Washington, there has been more and more pressure to raise the minimum wage to $15 an hour. Although this may seem like a positive step for people who live below the poverty line, it would actually be very detrimental and lead to irreversible damage to the United States economy.

The United States is an incredibly large country that is filled with hundreds of millions of people from wide ranging demographic areas. There cannot be a one-size-fits all federal approach to increasing the minimum wage because states know their citizens better than those in the nation’s capital. Each state could then calculate which hourly wage increase would be appropriate for its own economy. Local politicians can create a plan that better fits their needs—rather than having national bureaucrats thousands of miles away decide for them.

A federal minimum wage isn’t logical because states have different costs of living and economic circumstances. The cost of living is defined as the amount needed to afford basic needs such as housing, food, healthcare and more. If you live in a state with a low cost of living, then your dollar is more valuable.  For example, because the goods and services are less expensive in Alabama, the value of $1 in Alabama is actually $1.15 in comparison to New York where that same dollar is worth a mere $.87. Alabama and New York have completely different economies, which begs the question of whether they should have the same minimum wage.

If the federal government mandated a national minimum wage of $15, this would lead to an increase in unemployment because small business would not be able to meet the national minimum hourly pay requirements. The Employment Policies Institute conducted a study on the effects of increasing the minimum wage for small businesses. They found that a ten-percent increase in the minimum wage would lead to a 0.8%-1.2% decrease in employment.

In 2021, payroll taxes will make up 36% of U.S. tax income. Increasing the minimum wage would lead more businesses to pay their employees in cash, and this would take away tax dollars that would be funneled into low-income communities. National and international conglomerates can afford the increase in pay, but small businesses which already have tight margins would be swept away. As technology continues to improve and become more integrated into our lives, there will be a smaller demand for human labor, especially in the service industry—where operations are systematic. The World Economic Forum states that automation will replace 85 million jobs by 2025. Increasing the minimum wage would force business owners to transition to the long-term option of automation for its labor.

The minimum wage hike can incur higher payroll expenses and require businesses to raise prices to make ends meet, such as paying their employees.  Although a business could be making more profit, the reality is that the of the dollar is decreasing while inflation increases.

Increasing the federal minimum wage requirements is nice in theory, but in reality, it will create irreversible damage to the nation’s economy. The United States of America was created through a balance of state and federal power. This power should be given to the states in order to independently determine which minimum wage requirement is the most beneficial for their citizens.