In recent weeks the RAISE Act has caused much controversy across the aisle, with the Republicans decrying the measure as destructive and the democrats standing by their bill.
However even if raising the minimum wage was to be considered a net gain, an obvious problem arises. How do you account for the disparities between the various states and various businesses themselves? How do you prevent mandated equality from breeding more inequality?
Take the former states of Maryland and West Virginia for instance. In the fiscal year, 2019 Maryland had a median income of $40,341, while West Virginia trailed the Old Line State with a median income of $25,320. That means that on average a worker in Maryland earns 38% more. This regional disparity is also reflected in the minimum wages applicable in these 2 localities, with the minimum wage being $8.75 per hour in West Virginia and $11.75 per hour in Maryland.
Under the RAISE Act, both West Virginia and Maryland would both have to raise their minimum wages to at least $15. Were they to do that then West Virginia would be forced to raise its minimum wage by over 40% while Maryland would need to raise its minimum by about half that. In effect businesses in much less affluent Appalachia would be faced with a disproportionately large increase in labour costs that they simply cannot afford.
This disparity becomes even bleaker when it comes to the rural-urban divide faced by many states. On average mostly rural areas are significantly poorer than large cities. This is reflected in their earnings where a worker in a mostly rural area earns close to a quarter less than their urban counterpart.
What makes this increase even more destructive is that under the proposed Act tipped and non-tipped workers would be entitled to the same hourly compensation, despite the fact that the former usually tend to make most of their wage from tipping. According to one source:
“The median share of hourly earnings that come from tips account for 58.5 per cent of wait staff’s earnings, and 54 percent of bartenders’ earnings.”Nelp
With that in mind, a mandatory $15 per hour wage makes even less sense for tipped workers, especially in the context of our reeling service sector. Even before the pandemic, the pretax profit margin for most restaurants was in between 2-6%. After the pandemic, however, most restaurants have reported 30% lower sales and yet under the proposed minimum wage regulations, these same operators could see their costs increase by 20-30%.
To see just how destructive a minimum wage hike of these proportions can be, one has to harken back to 2014 when Seattle passed a $15 per hour minimum wage within a fairly similar timeframe to the one proposed within the RAISE Act. As a result, smaller restaurants like the one you can read about here had to contend with skyrocketing labour budgets. To quote one owner
“When we started our business, our labor cost was right around 25% and our store profit without owner salary was about 33%. When minimum wage increased to $13/hr, our labor bumped up to 35% and cut our bottom line by 10% down to 23%. Next year, our labor cost will bump up to 40% (an increase of 15% from 25%) and our bottom line will be 5%.”
Perhaps it is then why even the non-partisan CBO projects that a $15 per hour minimum wage would destroy 1.4 million jobs and these job losses would be concentrated amongst our most vulnerable workers – the least educated and youngest workers.
Yet it is worth noting that the CBO projection assumes a $15 minimum wage being imposed by 2025 whereas the RAISE Act mandates an increase within less than 3 years from now, indicating that the effects of the new regulation would be far more severe than they may at first seem.
Unsympathetic to these concerns of small business owners, many on the political left have tried to paint the increase as an act of class war pitting the workers against large corporations and greedy. That is despite the fact that most large companies such as Costco and Amazon already pay $15 per hour irrespective of the federal minimum wage as they can afford to do so. This is a stark contrast to smaller enterprises, which often have to
This fact reveals perhaps the biggest intellectual hypocrisy in the Democrats’ ideology. On the one hand, we have seen pieces of legislation such as the Wealth Cap Act or the Green New Deal. All of which sought to increase the progressivity of our tax code by making those who in the eyes of the Democrats can do so pay their fair share.
Yet when it comes to the minimum wage we see the Democratic Party pursue $15 , sometimes $25 dollar minimum wages, which would have practically no effect on the wealthy, while disproportionately harming small business and the poorest workers as a whole…