A Rising Tide or a Hole Beneath the Water Line?

Published 02/09/2021
The Great $15 Debate
 
 
The $15 minimum wage – a rising tide or
a hole beneath the water line?
 
There is a lively discussion going on regarding the push for a higher minimum wage. In Rhode Island, the Senate Labor Committee voted 7-4 to recommend passage of 2021-S.1, An Act Relating to Labor and Labor Relations – Minimum Wages. Because of the wide support for a higher minimum wage (two-thirds of Americans), the COVID-19 pandemic, and social unrest related to widening income disparity, this bill is being fast tracked and is on the Senate Calendarfor Feb. 10, 2021. It will then most likely pass into the house directly, or into committee if the house and senate bills differ. If passed, the scheduled increases will look like this:
 
·     Oct. 1, 2021 from $11.50 to $12.25
·     Oct. 1, 2022 from $12.25 to $13.00
·     Oct. 1, 2023 from $13.00 to $14.00
·     Oct. 1, 2024 from $14.00 to $15.00
 
The proposed scheduled increase is approximately 23% over 4 years. This is a dramatic boost compared to the 3.4% increase over the last ten years. However, since the real value of the federal minimum wage has declined 24% since 1968, advocates claim that a extraordinary increase is necessary if we want to return to a more equitable minimum wage.
 
Absolute wrong time for a wage increase?
 
Under normal conditions, it would be expected that a large portion of the business community would be opposed to such a significant and rapid rise in the minimum wage. But nothing about 2020 and 2021 is normal. As part of its testimony in opposition to 2021 S-1, the Northern RI Chamber of Commerce wrote “Members of the business community understand and appreciate the desire to improve wages in the state. We share the goal of ensuring Rhode Islanders have the employment opportunities and earning capacity to support themselves and their families. However, the State’s business community continues to experience the significant economic strains of the 2020 pandemic, and these challenges are expected to continue for the foreseeable future. Adding the proposed increases in the minimum wage to the continued state-mandated capacity restrictions currently in place will only compound the barriers to getting the economy going again, adding significant costs to reestablishing and growing Rhode Island’s small businesses”.
 
Increase in GDP     
 
On the other hand, a study by Doug Hall and David Cooper estimated that a $2.55 increase in the minimum wage would increase the earnings of low-wage workers by $40 billion and result in a significant increase in GDP and employment. Additionally, another study points out that a raise in the minimum wage benefits predominantly low-wage workers, who would most likely put the extra income right back into the local economy.
 
It is safe to say that all business owners agree that workers should be paid a fair wage and, if conditions allow, they (the business owners) would love to be able to raise workers’ salaries. Studies show that employee job satisfaction increases, and absenteeism decreases with higher wages. Productivity rises and employee turnover falls, reducing recruiting and training costs.
 
An article in Investopedia “What are the pros and cons of raising the minimum wage?” says, in part…
 
Pros… “The primary argument advanced in favor of raising the minimum wage is that higher earnings would improve the overall standard of living for minimum wage workers by providing them with a more appropriate income level to handle the cost of living increases.
 
A 2019 Congressional Budget Office (CBO) report projected a significant improvement in the standard of living for at least 17 million people, assuming a minimum hourly wage of $15 by 2025, including an estimated 1.3 million people being elevated above the poverty line.”
 
Cons…”Among the disadvantages of increasing the minimum wage is the probable consequence of businesses increasing prices, thus fueling inflation.
Opponents argue that raising the minimum wage would likely result in wages and salaries increasing across the board, thereby substantially increasing operating expenses for companies that would then increase the prices of products and services to cover their increased labor costs.
 
Increased prices mean a general increase in the cost of living that could essentially negate any advantage gained by workers having more dollars in their pockets.”
 
The debate will go, but the smart money is on an expected increase in the minimum raise. At ASN, we are following this situation closely, and will keep you informed and up to date. If you would like to have a conversation as to how this could affect your business and how we could help, we love to talk to you.