The COVID-19 pandemic has changed our routines, but it doesn’t change the laws of economics. Yet it seems government is in the business of doing something when it really should do nothing, such as the recent proposals by President Biden and Congress to spend more and raise the federal minimum wage in the name of pandemic relief.
These actions would not only make a bad economic situation worse, especially for the ones the policies are intended to help, but they would destroy the unity that the president says he wants.
We’ve already seen the devastation that government action can cause during the pandemic, as the broad U6 unemployment rate remains at an elevated 11.1% and almost 800,000 people are filing initial jobless claims every week. The government shutdowns are an unfolding tragedy, and we won’t know their full extent for years to come.
But, as usual, there’s another attempt to put a patch on the American economy with an unnecessary, poorly crafted monstrosity of a $1.9 trillion COVID-19 relief package, which includes raising the federal minimum wage from $7.25 to $15 per hour by June 2025.
This boondoggle sends taxpayer money to people through checks when real personal income reached a record high in 2020. Its higher unemployment payments will distort incentives to work. And it will bail out profligate state and local governments when they’ve already received nearly three times more in taxpayer funds than their estimated losses.
Collectively, this package could delay the needed reopening of our economy, the only real path to regain Americans’ taken prosperity.
The focus of a package—if it must be done—should be to get the vaccines out as quickly as possible to open America now so that people can regain their prosperity they had before the pandemic. Better yet, a pro-growth approach of spending restraint, tax relief, and deregulation would be a better federal response.
In fact, the latter two measures (tax relief and deregulation) were practiced by the Trump administration and it contributed to records of the highest real median household income and lowest poverty rate in 2019. And while President Trump’s budgets found more fiscal savings than any other president, Congress continued to spend excessively—thereby bankrupting us and our country in the process.
But what’s getting a lot of media attention recently without much consideration of its cost is the Raise the Wage Act that the Democrats in Congress are trying to push through. This arbitrary hike of the federal minimum wage would be a mistake as it would separate us in terms of economic status and further divide us as a nation. That’s not what I would consider as “unity.”
According to a 2019 Pew Research poll, about two-thirds of Americans supported increasing the minimum wage to $15. But at what cost, given that nothing is free?
For example, the Congressional Budget Office recently reported that passing the Raise the Wage Act could mean as many as 2.7 million workers lose their job and earn the real minimum wage of $0. This would also come at the cost of $54 billion more to the national debt, further bankrupting us. And while the number of people lifted up from poverty could be 900,000, many of them will face higher prices, higher taxes, and higher interest rates making it harder for even those lucky enough to not lose their jobs to make ends meet.
But this analysis misses two key points that should not be overlooked: 58.5% of Americans earning the minimum wage are between 16 to 24 years old, and costs of living vary greatly across states, with California being 50% more expensive than Texas.
This means that those who will be hit hardest by raising the minimum wage are those just trying to get their foot on the bottom rung of the economic ladder, and typically have other sources of income. In fact, raising the minimum wage can benefit high-wage, highly skilled people at the expense of low-wage, low-skill people as employers move from labor to capital in their operations. This actually increases income inequality.
And states that have done a good job in keeping the cost of living low, like Texas (due to more pro-growth policies resulting in increased economic freedom) are hit hardest compared with those that don’t, like California. We should let federalism’s system of “laboratories of democracy” continue to prove that people vote with their feet, as the number of Californians moving to Texas increased by 36% in 2018.
America may still be suffering through the chaos of COVID-19, but that doesn’t mean we need more of it. President Biden should give doing nothing a chance, especially his policies that will bankrupt the country and force increased unemployment.
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Vance Ginn, Ph.D.