In April 2019 Joseph R. Biden announced that he would be running for the 2020 election. Now in November 2020 Biden’s dream seems to be coming true. Biden has come out in full support of raising the minimum wage, and he says would like to more than double it. This would be a raise from $7.25 to $15.00. This would entail drastic consequences for the American economy, such as lay-offs, more jobs leaving America, death of many small and medium businesses, an economic crash, less white collar workers, massive inflation, more poverty and strain on government services, less incentive to get higher education, and worst of all, no more McDonald’s!
To begin with, imagine a small lawn care business owned by your friend Steve called EZ Lawn Care that employs 24 workers and pays them each $10 an hour. The company charges each house $100 per treatment. If every employee is in a group of 3, and each group works 7 hours a day, finishing 3 houses each day and working 252 days a year, the company will make $604,800 without taxes or worker paychecks. With paydays out of the way, it is reduced to $181,440. After income tax (6% in KY) is taken out, $177,533.60 remains for business expenses, so Steve makes a $120,000 salary. With a forced minimum wage of $15, Steve now is faced with a $30,240 deficit and is forced to raise prices, lay off workers, or go out of business just to be able to break even. All three of these options are bad for Steve and his workers.
Aside from that, minimum wage also devalues the dollar. The businesses that survive the increase of minimum wage will have to raise prices to stay afloat. A $2 loaf of bread will end up costing more than it did, say, $5. Now, a person who has a minimum wage job and has survived the layoffs is truly in the same situation. The only thing that will change is the number amount of money you are paying, not the value of the object you are buying. But, for people with salary jobs, this is bad because their wages won’t increase at the same rate as the minimum wage makers.
Another big problem is the lack of incentive to get a college degree, or go into a medium paying job. Currently, EMTs and paramedics are paid anywhere from $15-20 for their work. Paramedics and EMTs risk their lives on a daily basis to save the lives of others. It is a very difficult job, and with a $15 dollar minimum wage, these people are getting bottom of the barrel pay. It also discourages people to strive for college degrees. Why would someone who can make a good living off of flipping burgers want to go through college to get a job that pays proportionally less than it used to.
An article by the ACI (American Consumer Institute, Article linked here) and another by Investors Business Daily (here) show some startling facts about minimum wage raises. The IBD article states that in New York City — a city with a recently increased minimum wage of $15.00 – 4,000 restaurant workers lost their jobs in the first 3 months of the raise. A survey found that 47% of restaurants in New York City were forced to lay off workers. On the west coast (An area that has many cities with high minimum wages) a company called Restaurants Unlimited that owns 35 locations along the cost is now filing for bankruptcy because they can’t afford to pay the workers such high amounts.
Credit to: https://www.investors.com/
People will often point to large corporations, such as McDonald’s or Walmart. But the truth is, even they cannot afford it. As said in an article by Forbes “A typical franchisee sells about $2.6 million worth of burgers, fries, shakes and Happy Meals each year, leaving them with $156,000 in profit. If that franchisee has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirement eats up three-quarters of their profitability. (In reality, the costs will be much higher, as the company will have to fund raises further up the pay scale.) For some locations, a $15 minimum wage wipes out their entire profit.” The truth is, most McDonald’s are not owned directly by McDonald’s but franchisers, who would have no way to pay such high wages. For many companies that are the size of McDonald’s, the best option is to invest less in the US and more in other countries. Why would McDonald’s open a restaurant in the USA that would struggle to stay in business when they could open one in China where they will have massive profits.
A point that supporters of a $15 minimum wage will make is that it will provide the needy with a better income. But truth be told, it will help a few of the impoverished population, but for the majority, it means even less money. People who are in poverty are usually working jobs that pay exactly minimum wage. A company that is forced to pay its employees $15 an hour will prioritize firing the people that have the highest jump in wage. A person who already makes $13 an hour is easier to raise to $15 an hour, but given someone who makes $7.25 an hour the company can double their wages for the same productivity, or fire them and use the money saved to help pay other employees.
In the end, a $15 minimum wage is not going to be the best solution for ending poverty. Instead of ending poverty it will make it harder on the majority of Americans. Luckily, the likelihood of a nationwide $15 minimum wage coming to be is not high, as republicans are likely to win the Senate and have a sizable percentage of the House.