$15 Minimum Wage Would Be A Huge Blow To The Small Business Economy

Opening and running a business has never been easy, but this past year has been particularly challenging for the nation’s entrepreneurs—those who represent the “driving force” of our economy, as Ludwig von Mises once described them.

Just months after the American economy began shutting down in the wake of the coronavirus pandemic, more than one hundred thousand businesses had already shut their doors. Many of the small businesses that were strong enough to survive the past year’s lingering public fears and government lockdowns, are turning razor-thin profits. And now the congressional Democrats and the new administration in Washington have announced plans to more than double the federal minimum wage from $7.25 to $15 an hour—therefore firing the first salvo in what JP Morgan Chase economists Michael Feroli and Daniel Silver predict will be the “mother of all economic debates.”

Image source: Thomas Hawk via Flickr

Yet while this wage increase may generate a robust debate, its implementation would also necessarily mean that, at the very least, all workers whose level of productivity is below $15 an hour will become, for all intents and purposes, unemployable by profit-seeking enterprises. Worse, such a mandated reduction in the workforce will deprive small enterprises of these workers’ productivity at a time when they are trying to find their “sea legs” in the midst of ongoing economic turbulence.

The numbers tell a scary tale. Nearly 50 million US workers work in occupations with a median wage of less than $15 per hour—somewhere between the current minimum wage of $7.25 and just below $15. By requiring the nation’s already struggling entrepreneurs to double the wages they pay to this enormous group of workers—almost a third of the US workforce—legislators would be leading these Americans, and the companies that employ them, into unchartered and treacherous waters.

As JP Morgan’s Feroli and Silver point out, most minimum wage increases over the years have ranged from 5 to 15 percent—nowhere near the more than 100 percent increase that is under consideration. The current proposal—even if it is carefully phased in, as President Joe Biden promises—would clearly result in an enormous amount of uncertainty both for the small enterprises that employ an overwhelming majority of these workers and for the workers themselves.

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J.R. Vidueira is an investment advisor who has contributed to myriad financial and business publications. He is pursuing a master’s degree in Austrian economics at the Mises ...

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