Opinion

Small-Business Owner: Tread Carefully With a $15 Minimum Wage

The border crisis may be dominating the headlines (and for good reason), but America’s job creators cannot let their guard down. President Joe Biden and other Democrats have proposed a wide range of tax and regulatory policies that could threaten small-business owners and other employers, as well as their employees.

Perhaps the best example is a $15 federal minimum wage, which liberal Democrats have not abandoned in recent weeks. According to Rep. Ro Khanna (D-Calif.), “We need to pass a $15 minimum wage by the end of the year,” saying it must be “part of must-pass legislation.” Rep. Rashida Tlaib (D-Mich.) echoed his sentiment: “My residents are tired of waiting. They cannot wait any longer for livable wages.” Khanna recently organized a press call with fellow Democrats, union officials and activists to call for a minimum wage hike in 2021.

Faced with a looming increase in labor costs, coupled with Biden’s newly introduced $3 trillion infrastructure plan, the small-business community is bracing for decreased revenue and other financial consequences. The Biden administration has mulled increasing taxes to pay for the plan, a burden that would be borne by employers.

As a small-business owner, I believe in livable wages. We need to do right by our workers. Over the decades, I have often provided my hardworking employees with pay raises and bonuses to better provide for their families. After the Tax Cuts and Jobs Act passed in 2017, I gave out four-figure raises to four key workers — half of my workforce at the time — and financed a long-overdue international expansion. With more resources at my disposal, we even secured product packaging in Mandarin to increase exports to China.

This was possible because the TCJA empowered small-business owners like me to make the decisions that best serve employees and business overall. The federal government trusted us to make the right business decisions, and we delivered.

A $15 federal minimum wage would take the decision-making process out of the small-business owner’s hands and transfer power to the government. Let’s be clear: Hiking the federal minimum wage to $15 an hour represents a 107 percent increase from the current rate of $7.25 per hour, which translates to higher labor costs. The “livable wage” rhetoric is certainly aspirational, but that money doesn’t come from nowhere — it comes out of business revenue. When the minimum wage goes up, business revenue goes down, leaving aside less and less profit for job creation and business expansion.

According to the nonpartisan Congressional Budget Office, a $15 federal minimum wage would cost the U.S. economy roughly 1.3 million jobs by 2025. While some workers would surely benefit, the wage hikes would be offset by even more workers losing their jobs. In the CBO’s words: The wage hike would “reduce the nation’s output slightly through the reduction in employment and a corresponding decline in the nation’s stock of capital.”

To put it another way, one-third of small businesses said they would lay off employees if Congress increases the federal minimum wage to $15 an hour. My own small business would certainly suffer. And I’m based in Florida, where the statewide minimum wage will already increase to $10 an hour by September of this year. In more economically depressed states, such as Georgia or Wyoming, the $15 federal minimum wage would be even more harmful. Applying the same federal wage threshold to all 50 states fails to consider potential differences between the states.

There would be many losers, but young Americans would take the cake. Nearly half of all employees earning the current federal minimum wage are between the ages of 16 and 24. High school and college students are disproportionately impacted by excessive wage hikes, hurting their chances to climb the career ladder. What happens to their upward mobility when minimum-wage jobs vanish?

At the same time, what happens to employees who have worked in their jobs for multiple years and already earn $15 an hour? They would be put at a disadvantage as their less experienced coworkers benefit from government-mandated wage hikes.

The minimum wage issue is also less relevant than many Americans think. Among those paid by the hour, fewer than 400,000 working Americans earned exactly the prevailing federal minimum wage of $7.25 per hour, while 1.2 million have wages less than that. The share of hourly paid workers earning the prevailing federal minimum wage or less made up 1.9 percent in 2019. A better solution is to help employers, who can directly distribute more money to their employees.
Congress needs to tread carefully. Now is simply not the time to threaten job creators with new government mandates.

 

Owner and manager of Joseph’s Premier Real Estate, Joseph Semprevivo serves as an adjunct professor of finance, business, real estate, and insurance at Indian River State College in Florida.

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