Why this is not the right time to push for a higher minimum wage
In the wake of the coronavirus, state governments got to decide which businesses are essential and which ones are not.
Coincidentally, a lot of these essential businesses happen to pay low wages. There is a good explanation for this occurrence. Most of the businesses which have been deemed essential are in the service industry, and the service industry pays lower wages compared to other industries — mainly because of differences in productivity. This has always been the nature of the economy.
The fact that workers in essential businesses were ‘forced’ to work and put their lives at risk has, however, brought in an interesting, yet unsurprising trend. Seeing as how these essential workers are lowly paid, people are now calling for higher wages for them.
According to some people, essential workers have saved our lives, but they are underpaid. it is time that society fixed injustice.
Essential workers are far too often the disregarded workers in society. They are often overlooked and underpaid. But today, they are saving all of our lives and taking the risks of delivering the crucial services that our society absolutely needs. Oh yes. We are learning how much we truly need them, and we can’t overlook them now. We can’t look away. We can’t ignore their plight. And no, we can’t thank them but not pay them. And we absolutely shouldn’t.
Some proposals of offering hazard pay, for example, are reasonable, since hazard pay would indeed reflect the extra risks that these workers are undertaking.
But some people have used this opportunity to call for something more permanent; like raising the minimum wage.
Disregarding the fact that these workers are paid low wages due to the nature of their industry, there are a lot of reasons why raising the minimum wage would be a bad idea. For one business are currently fragile. And more importantly, the hardest hit industries would be the most heavily impacted by a minimum wage hike.
Businesses are currently fragile
Businesses are facing low revenues while facing increasing costs. Some have already permanently closed and others are on the edge of going under. Saddling businesses up with extra costs is quite irrational.
In good economic times, businesses might be able to offset higher labor costs from minimum wage hikes with high profits. These are, however, good economic times. Businesses are not expanding or making profits. The rate of new business formation is also quite low.
It is additionally going to take a long time for consumption to reach pre-pandemic levels. This means businesses will operate on the contracted capacity for a while, and therefore, will not be looking to hire for quite a while.
Not to mention that,
During booms, some businesses might absorb minimum wage increases through taking a short-term profit hit, although in the longer run they might reduce new hiring or trim worker benefits so that profits recover. Right now, though, most businesses don’t have profit cushions or scope to raise their prices, so there will be more immediate risks to employment.
The service industry has been hard-hit
The other big risk to raising the minimum wage for essential workers is that this will basically place the burden on already hard-hit small businesses in the service industry. The service industry is where most low-wage workers are employed, and this is where business closures have been concentrated.
Moreover, these industries are already affected by ongoing minimum wage hikes. Increasing the minimum wage further will hurt both businesses and workers.
Indeed, recent minimum wage increases will particularly affect industries harmed by COVID-19. A new Bureau of Labor Statistics analysis has found that “occupations with lower wages are more common in the shutdown sectors than elsewhere in the economy … Consequently, shutdown policies disproportionately affect workers in lower paying jobs.” It is those jobs that minimum wage policies threaten.
According to the BLS, industries most exposed to shutdowns with high concentrations of lower-wage jobs include restaurants and bars (12.3 million workers), other retail (6.5 million), travel and transportation (3.5 million), entertainment (2.6 million), and personal services (2.1 million). Even when shutdowns are lifted, consumers will hesitate to sit in crowded restaurants, vacation in hotels, and go to theme parks until a vaccine for the virus is rolled out.
A good example of this is New York
Today, it is high state and city minimum wages that will cause the most harm. In New York state, about 1 million people worked as retail salespersons, fast food workers, cashiers, wait staff, cooks, and bartenders before the pandemic. Many of their employers will not be able to afford the state’s $11.80 minimum wage nor New York’s City’s $15 minimum in a struggling post-pandemic economy.
Not to say there is a good time to force businesses into paying more than what their employees are worth but businesses, especially those in the service sector, have been hard hit by the pandemic and are only trying to recover. Burdening them with higher wages only means that some of them might not reopen or will fail to survive the pandemic.
Businesses are already focused on cutting costs to stay afloat. Most of them will not be able to rehire their employees and will take a long time to recover. Using the pandemic to force them to pay their workers more will not help them or the economy in any way.