Does the 2021 Covid-19 Stimulus Need Wage Increases?

As part of Biden’s $1.9 trillion Covid-19 rescue plan, the raising of the federal minimum wage to $15 an hour, will fulfill a major campaign promise. The current federal minimum wage is $7.25 per hour.

A recent study by the Congressional Budget Office, entitled “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” was conducted to determine how increasing the federal minimum wage from $7.25 to $10, $12 or $15 per hour would affect employment and family income.

The conclusion was that increasing the federal minimum wage would have two major impacts on low-wage workers: earnings would increase for many, which would lift some families out of poverty. However, other low-wage workers would become jobless, and it could place them below the poverty threshold. This issue is timely, important, and deserves an honest look.

The idea of raising the minimum wage is noble and commendable, but many of the arguments neglect sound economic ramifications that will adversely impact the same people it’s trying to help.

Employers, especially small family and midsize businesses, will be disproportionately hurt by the extra costs incurred. This is in addition to their loss of sales due to the pandemic. 48% of all US employees work for small businesses.

It is important to consider the real possibility that many small businesses are already thinking of closing down after nearly a year of losses. If they do shut down because of this increase in cost we could be faced with layoffs directly impacting a large portion of the workforce.

Instead of stimulating the economy, the reverse would happen. Fewer jobs, fewer paychecks, less spending, and the cycle continues as more small businesses go under. We have not seen the full impact of the pandemic as the government stepped in with stimulus money as the market crashed in 2020.

The market rebounded, but what would happen if we had widespread unemployment due to the massive closure of small businesses that were hit with the pandemic and a more than doubling of labor costs at the exact same time?

In my opinion, both small and large businesses would be impacted. The market would definitely reflect the drop and the economy will likely head into a prolonged recession.

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Principal Solution Architect at MongoDB, Former Principle Solution Architect at Oracle

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Britton LaRoche

Britton LaRoche

Principal Solution Architect at MongoDB, Former Principle Solution Architect at Oracle

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