Asked at the most recent presidential debate about the wisdom of a $15 federal minimum wage, Joe Biden dismissed potential consequences: “There’s no evidence that when you raise the minimum wage, businesses go out of business.”
As the candidate might say, that’s malarkey.
The minimum wage is one of the most-studied topics in economics, with reams of research papers dating back to the creation of a federal standard in 1938. While not universal, the consensus across these studies is that a higher minimum wage reduces job opportunities for workers just getting started in their careers.
This evidence has only grown stronger in recent years. A paper published by the San Francisco Federal Reserve Bank in 2015 took stock of newer evidence and concluded that, if anything, wage hikes have “possibly larger adverse effects than earlier research suggested.”
Last year, the nonpartisan Congressional Budget Office studied the national impacts of raising the federal minimum wage from $7.25 to $15. It concluded that 1.3 million workers would be pulled out of poverty — but at the cost of 1.3 million lost jobs.
My organization updated the CBO’s report to account for the economic impacts of the pandemic and found a federal $15 wage enacted today would cost 2 million jobs. Half of those lost jobs are in the hospitality industry, already hard-hit from the COVID crisis.
Job loss on this scale is a consequence of a minimum wage demand without precedent. Seattle became the first major city to embrace a $15 minimum wage, phasing in for large employers as early as 2017; San Francisco’s minimum wage hit this level in July 2018.
The early evidence from these cities is not promising. Data from the Census Bureau shows that San Francisco — considered one of the top restaurant cities in the world — has lost over 1,000 restaurant jobs in the past two years. In Seattle, a research team affiliated with the University of Washington found that the city’s minimum wage experiment increased the rate of business exit (closing or leaving the city) by 13 percent.
These authors found the worst damage from Seattle’s rising wage floor began around $13 an hour. In other cities with a lower cost of living, it’s happening sooner.
In Denver, for instance, the city’s full-service restaurant industry was growing at a rate of roughly 6 percent between 2013 and 2016, according to Census Bureau data. After a ballot initiative raised the minimum wage to $12 and the tipped minimum wage to roughly $9 an hour, that growth fell under 1 percent. Last year the city’s full-service restaurant industry shrank for the first time in at least a decade.
These sobering statistics are backed up by countless stories. In February, a well-regarded Denver restaurant called The Berkshire closed its doors after more than a decade in operation — leaving 40 employees without a job. The owner explained that “the rise of rent and an increase in the minimum wage for the front of the house” contributed to the decision to close down. (More stories from around the country are available at FacesOf15.com.)
Biden has promised to support small businesses struggling from the pandemic. He can start by listening to the owners telling him that a higher minimum wage will put them out of business.
Michael Saltsman is managing director at the Employment Policies Institute, which receives support from businesses, foundations and individuals.
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