A new study estimates that raising the minimum wage to $15 could result in the loss of 2 million jobs after taking Covid-19 into account
Research exists showing that the minimum wage is detrimental to small businesses and low-income workers. And as I have shown, the coronavirus has amplified these negative effects of raising the minimum wage. Surprisingly, however, the call to raise the minimum wage has been stronger during the coronavirus. Despite the fragility faced by small businesses, proponents for higher minimum wage have pointed to the plight of essential workers as a good reason to raise the wage.
Proponents of raising the minimum wage during coronavirus only like to look at one side of things; the effect of raising wages on people that would be lucky enough to keep their jobs. It is very easy to see how biased this view is. The truth of the matter is, raising the minimum wage is disastrous for low-income workers and small businesses. And due to Covid, the results could be even more disastrous, as illustrated by new research.
Raising the minimum wage would be more disastrous now after Covid-19
In July 2019, the Congressional Budget Office (CBO) estimated the impact of raising the federal minimum wage to $15 by 2025 on the economy. Among the findings was an estimated loss of 1.3 million jobs. A recent report by the This has been shown the Economic Policies Institute (EPI) shows that job losses would be even higher in new changes between 2019 and now are taken into account.
The new report by economists William Even and David Macpherson analyzed the impact of the Raise the Wage Act that was passed in 2019 in the house of representatives. The Raise the Wage Act, if enacted, would raise the federal minimum wage to $15, as well as the tipped wage to $12.60 by 2027. The researchers use the same assumptions developed by the CBO but have updated them to include changes that have happened since 2019, that is including the covid-19 outbreak. According to the report, the authors of the study
estimate that if enacted, the Raise the Wage Act would result in 2 million jobs lost across the United States. The Arts, Entertainment, and Recreation and Accommodation and Food Services sectors will account for half of these job losses. Workers aged 16-24 will see the highest proportion of job losses, and the majority of jobs lost will be those held by women. Tipped workers will also lose a greater share of jobs affected by minimum wage than non-tipped workers—one in three tipped workers affected by this federal minimum wage increase will lose their job.
This goes to show how disastrous raising the minimum wage would be, especially be when coupled with Covid-19 impact on the economy. As I have written before, most small businesses, which tend to bear the brunt of minimum wage raises, operate on a very thin profit margin. And Covid-19 has worsened the economic outlook of most small businesses. Therefore, it would be very unwise for policymakers to place an extra burden on businesses that are trying to recover.