If your news app on your phone has been doing its job, you may be aware that one of the biggest bills has been passed by the Senate at the time of this writing. The American Rescue Plan is a mammoth of a bill that’s going to help Americans withstand the devastating consequences of COVID-19. It’s in short, a COVID relief package that’s 1.9 trillion, yes, TRILLION with a T, dollars out to Americans. Considering that this pandemic has somehow affected every American in some type of way, it makes sense to send aid out to those 9.5 million people who lost their jobs last February at the brink of the pandemic. Now, many experts have stated that it won’t be until two years of job growth at this past February’s pace just to get back to pre-pandemic levels. One of the legislations added into the COVID relief package is raising the federal minimum wage to 15 dollars an hour, to a much more liveable amount than the current 7.25 dollars an hour that’s in effect now. At the time of this recording, the Senate removed language to increase the $15 an hour (simply, the minimum wage is going to increase to $15 an hour when this bill passes.) Here is the simplified explanation of what this all means, and what are some of the benefits and the drawbacks of this raise.
So for context, the minimum wage was first introduced in 1938, during the Great Depression. It was initially set to .25 cents an hour. It has since been increased 22 times, most recently in 2009 after the 2008 economic crash. It was raised from $6.55 an hour to $7.25 an hour. Currently, 29 states have their own state minimum wage that is higher than the federal one. These states include Alaska, Arizona, Arkansas, California, Connecticut, District of Columbia, (which as we know isn’t a state, guys.), Florida, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Vermont, Washington, and West Virginia. Washington currently holds the highest minimum wage at $13.69 an hour, but by next year in 2022, Massachusetts will take the title by raising their minimum wage to $14.25 an hour.
Now that I threw all the numbers at you, it’s time for the pros and cons, starting with the pros.
Pros
1. Raising the minimum wage would increase economic activity and cause job growth.
From increasing the minimum from $7.25 an hour to $10.10 an hour, it would inject 22.1 billion net into the economy and it would create 85,000 new jobs over a three-year phase-in period.
2. Poverty would plummet.
A study according to a 2014 Congressional Budget Office reports that increasing the minimum wage to 9 dollars would lift 300,000 people out of poverty. So, an increase to $10.10 would lift 900,000 people out of poverty.
3. Reduce government welfare spending.
Basically, if low-income workers earned more money, their dependence on the government for benefits would decrease. A report from the Center for American Progress states that raising the minimum wage by 6% to $10.10. It would reduce spending on food stamps by 6% or 4.6 billion dollars.
4. Would reduce income inequality.
Income inequality is the difference in the distribution of wealth and income within or between populations or individuals. A 2015 study found that the decrease in the inflation-adjusted value of the minimum wage since the 1980s has been a contributor to America’s high levels of inequality. So, raising the minimum wage would reduce income equality.
5. It would have a ripple effect.
Raising the minimum wage, would in turn raise the incomes of people who make slightly above the minimum wage. It would result in higher wages for not just the 3.7 million people earning minimum wage, but also up to 35 million workers who make up 150% of the federal minimum wage.
Cons
1. It would force businesses to lay off employees.
The Congressional Budget Office projected that a minimum wage increase from $7.25 to $10.10 would result in a loss of 500,000 jobs. In a survey conducted on 1,213 businesses, 38% of employers who currently pay minimum wage stated they would have to lay off some employees if the minimum wage was raised to $10.10.
2. It would increase the price of consumer goods.
A 2013 article by the Federal Reserve Bank of Chicago stated that if the minimum wage is increased, fast-food restaurants would pass on almost 100% of their increased labor costs to consumers and that other firms may do the same. Since there is an increase in the minimum wage, it would be inevitable that businesses would up their prices so they can still make a good profit from their goods or services.
3.Teens will be shut out of the workforce.
Minimum wage workers are disproportionately young. According to the Pew Research Center, 16- to 24-year-olds make up 50.4% of minimum wage earners, despite representing only 13.7% of the workforce as a whole. So, raising their pay will not make sense for the businessmen since they will not pay many young workers with no skills.
4. People wouldn’t climb for a better job.
Simply, a person’s first low-paying job provides the worker the skills and experience they need to reach the next step and continue climbing their way to a better life. So, you shouldn’t be making too much on your first minimum wage job, because it won’t motivate people to look ahead and aim for a better career.
5. Companies can easily replace humans.
It isn’t a surprise that many companies are switching from human labor to essentially free robotic labor. Therefore, if the minimum wage rises for low-skilled service employees, many companies don’t hesitate to go all robotic to save costs. As attorney Andrew Woodman, JD predicted in his blog for the Huffington Post, a minimum wage increase “could ultimately be the undoing of low-income service-industry jobs in the United States.”
As shown throughout this article, the debate isn’t so black and white, but more in the grey territory. On the one hand, it can help a lot of people. On the other hand, it will hurt a lot of people. It’s no secret that a lot of people are in support of the raise then again because they only see the pro’s side. But, by understanding and evaluating the cons, we can come to an agreement on which decision is best for the country.