Here’s how raising minimum wage to $15 an hour might impact poverty, small businesses

Hayley Fowler
·3 min read

President Joe Biden has signed an executive order that calls for more than doubling the minimum wage for federal workers, renewing a debate about whether increasing pay would help families climb out of poverty or put too much of a burden on businesses.

Biden’s plan, which calls for a minimum pay increase from $7.25 to $15 an hour, would only affect federal workers. (There are about 4.3 million federal employees, including more than 2 million civilians, according to the government.)

But labor advocates who have long pushed for an increase in minimum wage for all workers, say a boost in pay would improve the standard of living for the country’s lowest-paid workers and help families navigate rising costs.

Some opponents argue a drastic hike for all workers would negatively impact small businesses already struggling to stay afloat during the coronavirus pandemic.

“Doubling the minimum wage is kicking our small businesses when they are down,” Nikki Haley, former U.S. ambassador to the United Nations, wrote in a Tweet Monday. “They are trying to survive the pandemic and now they have to battle an administration that doesn’t understand that if small businesses can’t open and don’t have cash flow they can’t pay anyone.”

Sarah Longwell, founder of Republican Voters Against Trump, told McClatchy News she’s wary of raising the minimum wage to $15 an hour, citing undue harm to “small businesses amid a difficult economy.”

The nonpartisan Congressional Budget Office has said an increase in minimum wage would result in business owners absorbing “at least some of the higher costs of labor.”

According to a 2019 report from the Congressional Budget Office, about 1.3 million people could become jobless if the minimum wage was raised to $15 an hour. But it would also raise about 1.3 million people out of poverty while increasing wages for an estimated 17 million people who would otherwise be earning less than $15 an hour and another 10 million already earning around $15 an hour, the agency found.

Much of the loss of income for businesses would fall on families who the budget office classifies as “well above the poverty line.”

“All consumers would pay higher prices, but higher-income families, who spend more, would pay more of those costs,” the report said. “And the cost of effects on the overall economy would generally accrue to families in proportion to their income, which means they would largely be absorbed by families with income well above the poverty threshold.”

Analysts also say big companies who rely on low-wage workers — particularly fast-food restaurants and retail giants — would take the biggest “economic hit,” NBC News reported. But labor advocates have argued they can afford it more than their struggling workers.

“In general, most analysts agree that the benefits to working people far outweigh any such costs,” said Ruth Milkman, a professor of sociology at City University of New York, told NBC.

Mark Hamrick, senior economic analyst at Bankrate.com, added lawmakers could structure the increase in a way that lessens the blow to small businesses.

“To mitigate potentially negative impacts, the minimum could be applied in more nuanced ways to account for regional differences as well as scale of the enterprise and phased in over a period of years,” Hamrick said, according to NBC.

Several states and big cities have already upped the minimum wage.

In Illinois, Gov. J.B. Pritzker signed a law in 2019 that increases the minimum wage incrementally until 2025 when it reaches $15 per hour, the Belleville News-Democrat reported.

Cory Flament, who owns Flamentco’s The Place Pizza in O’Fallon indowntown St. Louis, told the newspaper he supports raising the minimum wage but acknowledged the financial toll it will take.

“We’re doing the best we can. We still have the lights on, still serving pizza every day,” Flament said, according to the News-Democrat. “We’re proud to be part of the advancement of wages, but at the same time it’s going to take some definite buckling down and making it happen.”