The $15 Minimum Wage

The Raise the Wage Act of 2021 is all the rage in Washington. Of course, the idea of increasing wages is always attractive, and this legislation would incrementally raise the federal minimum from the current $7.25 to $15 by June of 2025. While that may sound great, there are problems with implementing such a wage hike.

The non-partisan Congressional Budget Office recently estimated that raising the minimum wage to $15 an hour could lead to anywhere from 1.4 million to 2.7 million lost jobs. The reasoning is simple: businesses don’t exist to provide welfare. They exist to make a profit and to be successful, not to break even. I believe that if the wage increase happens, businesses will keep fewer employees and raise their expectations for those individuals to a level commensurate with their wages.

The CBO also expects an increase in the unemployment insurance that businesses pay because more people would be unemployed. This is another increase in costs that all businesses will seek to offset, either through job cuts, reduced hours and benefits, or higher prices.

If anyone believes that prices won’t go up with a minimum wage increase, well, they’re just plain wrong. Nobody runs a business to lose money or to just kill time. The objective is profit and a good quality of life from that profit. No business is going to suck up additional costs without some sort of offset. It could be higher prices or reduced goods and services. Maybe you’re Big Mac value meal will go up in price by a dollar or so, or maybe you’ll no longer get a beverage with the burger and fries, unless you want to buy it separately.

The bottom line is that higher costs for businesses result in offsets to those costs so that companies can continue to operate. Artificially imposing those higher costs as a result of Congressional action instead of letting the market determine wages and costs has consequences, like it or not.