To best gauge how legislation might impact public policy, it is often useful to listen to experts who have no stake in the outcome.
In 2014, as chair of the Federal Reserve System under the Obama administration, Janet Yellen expressed concerns about the impact of a proposed increase in the federal minimum wage from $7.25 to $10.10.
“I think almost all economists think that the minimum wage has two main effects,” Ms. Yellen, a distinguished economist, said at the time. One is to boost pay for low-wage workers, she said, and the second is “there would be some amount of negative impact on employment.”
How big the impact would be is a matter of “considerable debate,” she said, adding she “wouldn’t argue” with the Congressional Budget Office (CBO) assessment that 500,000 jobs could be lost, and noting economists there are “good at this kind of evaluation.”
A 2019 CBO study found that raising the minimum wage to $15 an hour by 2025 could cost 1.3 million jobs.
Ms. Yellen has since changed her tune about the impact of a minimum wage increase now that she’s the new U.S. Treasury Secretary in President Joe Biden’s administration, which is pursuing the $15 per hour increase. But her comments in 2014 and the 2019 CBO study should provide caution to people seeking clarity on this political issue.
We are fundamentally and philosophically opposed to a minimum wage. We want market forces to determine wages, not government officials, who rarely understand how businesses and the economy operate.
We know we are in the minority on this issue. A majority of Americans, or 67% surveyed last year by the Pew Research Center, expressed support for raising the federal minimum wage to $15 per hour. Who wouldn’t want their fellow citizens to earn at least $15 per hour?
But popularity doesn’t always result in good public policy.
One of the sectors most impacted by the pandemic has been the hospitality industry, which typically has lower-wage earners. The National Restaurant Association reported in December that 110,000 restaurants, or 17% of all U.S. establishments closed, and 3.8 million workers in this industry lost their jobs due to the pandemic. What would an increase in the minimum wage do to an already decimated industry?
Iowa’s low unemployment rate sits at 3.1%. Most economists consider this full employment.
If someone is currently making less than $15 per hour in this environment, they should have options to move to a different employer who might pay more. If their current employer wants to keep them, they will need to increase their wages. This is how a market economy works without the imposition of a burdensome minimum wage.
What is needed now to help the economy get through the pandemic is not new cost mandates and regulatory demands on small businesses. Rather, it’s just the opposite.