President Biden's push to raise the federal minimum wage to $15 an hour as part of a broader coronavirus relief package could be a "death knell" for businesses still reeling from the pandemic, according to a new study published this week.
The report, authored by researchers at the University of Kentucky, Indiana University and Washington University in St. Louis, found that hiking the minimum wage hurts new entrants into the labor market, based on data from six states that increased their minimum rate.
When the minimum wage increased, businesses — particularly those making tradeable goods, such as the manufacturing sector — reduced the number of new workers they were hiring, the study found.
"While the overall number of low-wage workers declines following a minimum wage increase, incumbent workers are no less likely to remain employed," the report said.
Given that the U.S. unemployment rate is still hovering at 6.7%, Radhakrishnan Gopalan, one of the study's authors and a finance professor at Washington University in St. Louis, argued now is not the time to hike the minimum wage.
Roughly 800,000 Americans have been filing for unemployment benefits each week over the past five months — nearly four times the pre-crisis level — and there are about 9.8 million more out of work Americans now than compared to February, before the crisis began.
“Small businesses are especially hurting from the pandemic," Gopalan said. "The restaurant sector, which employs a significant number of minimum wage workers, and the retail sector are struggling. Raising the minimum wage now would spell a death knell for many small restaurants.”
A recent analysis published by the Congressional Budget Office, a nonpartisan agency, found that as many as 3.7 million workers could lose their jobs as a result of the minimum wage increase. At the same time, the CBO projects that some 17 million workers would receive a pay boost.
"For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty," the report said. "But other low-wage workers would become jobless, and their family income would fall—in some cases, below the poverty threshold."
And although raising the minimum wage could boost spending among low-income Americans, Gopalan argued the Biden administration should wait until 2022 to implement an increase to allow the economy and unemployment rate to recover from the economic shock of the pandemic.
“Having said that, the multiple stimulus packages have put a lot of money in people’s hands, so one is talking about demand in the economy possibly outstripping supply once the pandemic is brought under control," he said. "Some are already cautioning about the economy overheating.”
The pandemic has already devastated small businesses, which employ roughly 59 million Americans, or about 47.5% of the nation's entire workforce. One estimate from Yelp found that between April and September of last year, 160,000 businesses closed -- or about 800 per day.
Biden is seeking to raise the minimum wage from $7.25 per hour, where it's remained for the past decade, to $15 per hour and to end the tipped minimum wage and sub-minimum wage for people with disabilities.
Separately, a group of Democratic lawmakers reintroduced legislation on Tuesday to raise the federal minimum wage to $15 per hour by 2025.
“Let’s be clear: The $7.25 an hour federal minimum wage is a starvation wage,” Vermont Sen. Bernie Sanders, the incoming chairman of the Senate Budget Committee, said during a call with reporters. "No person in America can make it on $8, $10 or $12 an hour."