Worst Possible Time for a Minimum Wage Hike

by James A. Bacon

As Virginia businesses contend with event cancellations, widespread self-isolation, and other fallout from the COVID-19 epidemic, Governor Ralph Northam has a critical decision to make: Does he sign minimum wage legislation into law or not?

Even as the epidemic began spreading in the United States earlier this month, the General Assembly saw fit to pass a law that will increase the state minimum wage in increments from $7.25 an hour to $15 an hour by 2023. Business lobbies opposed the legislation on the grounds that it would impose a crushing burden on many businesses, especially those that employed low-skilled workers.

Now, some two weeks later, public concern about the epidemic is focusing on the economic impact of the social-distancing strategies pursued to contain the spread of the virus. Here in Virginia the hospitality, retail, and restaurant industries are expected to get hammered as people curtail travel and dining out, and as emergency measures severely restrict business operations.

According to the Bureau of Labor Statistics42% of leisure and hospitality workers were paid minimum wage in 2018, as were 21% of retail workers nationally. Emergency virus-containment measures have been in effect only a few days, and employers in those industries already are cutting shifts, suspending work and laying off workers. The economic carnage is expected to be so severe that the Trump administration has proposed as much as $1 trillion in aid to keep the economy afloat.

It is hard to imagine an economic policy more counter-productive — more calculated to inflict incalculable harm — than increasing the minimum wage at a time like this.

Northam expressed support for a higher minimum wage in his State of the Commonwealth address in January. The unemployment rate in Virginia was 2.7% at the time, the economy was growing, and one could argue plausibly that employers could absorb a doubling of the minimum wage with minimal disruption. But that was before anyone imagined the economic pain inflicted by the epidemic-containment measures.

The economic circumstances are totally different today. Boosting the minimum wage would crush the very industries that most need help. At the very least, Northam should ask the General Assembly to delay implementation of the wage hikes to 2021, when, hopefully, the crisis will have passed.

Update: Steve Haner points out in the comments that the minimum wage increase would not go into effect until Jan. 1, 2021. That is certainly a consideration. While medical aspects of the coronavirus crisis may have passed by then, however, it is not at all clear how much the economy will have recovered. Recovery hinges upon unknowns such as the number of enterprises that go out of business between now and then.

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19 responses to “Worst Possible Time for a Minimum Wage Hike”

  1. Steve Haner Avatar
    Steve Haner

    The approved language: https://leg1.state.va.us/cgi-bin/legp504.exe?201+ful+HB395H3

    The first increase is not until January 1, and that is to $9.50. It is five years later that the rate hits $15, in 2026. That will require a “re-enactment” vote by a future General Assembly, or the amount stalls at $12. So the impact of the changes is spread out. That “re-enactment vote” is likely to come in a year or two, no doubt.

    So, even without the economic crisis, the gradual increase in labor costs would have an impact on job creation. Will that be worse or better now? I doubt it will be that different. The demand for labor coming out of this may raise wages anyway, especially if there is major mortality (sorry, but there it is.) Another Big Thing employers will face as we come out of this is major increases in their unemployment insurance taxes, seeking to rebuild that fund (which will be fully depleted and need federal bailout I predict.) I think the long term impact of this crisis will be even deeper support for higher wages, mandated sick leave benefits, etc. Just as the Great Depression changed attitudes and spawned social insurance programs in the U.S., so will this.

    President Trump just signed a bill creating a (limited) federal mandate for employer-funded sick leave. That won’t be walked back, and advocates are already pushing for more. Bernie Sanders won’t ever be President but he may see many of his dreams come true.

  2. Noted economist A. Gary Shilling (who in about 1984 predicted 2% yield on the 30-yr TBond) has recently said he feels the COVID-19 will reverse the trend of globalization, showing that we need less dependence on China etc. for everything. Not sure I see that change coming to Va. with our policies, but it’s good news for Mexico’s economy at least.


  3. LarrytheG Avatar

    45% of births are paid for with Medicaid as well as the health insurance of 45% of kids under 6.

    That really constitutes a direct subsidy to any business that is not providing health care to their employees and their families.

    It’s funded by taxes and by cross-subsides of hospitals to pay for charitable services and Medicaid reimbursed care.

    I wonder if one took the value of that subsidy and allocated it as an hourly number wage component how it would look.

    Small business, right now, is essentially being subsidized by taxpayers and insured others when workers do not earn enough to pay for their health care – and taxpayer-funded entitlements essentially supplement their income and hospitals charge more for services to paying customers and fight COPN.

    We talk about taxing the guy behind the tree. Here, we are pretending that lower paid workers are not raising taxes on taxpayers – the guy behind that tree.

    How about small business that provides health insurance is waived from some or most of minimum wage?

    1. Steve Haner Avatar
      Steve Haner

      The effort to count health insurance or other benefits, to measure “total compensation” and not just wages, will continue. It is highly logical but the Powers That Be behind this movement won’t accept that, they want the higher wages plus the benefits. This is where liberals do accept the “rising tide” argument, knowing that a higher minimum wage forces up labor costs in better paying jobs, too.

      1. LarrytheG Avatar

        re: ” This is where liberals do accept the “rising tide” argument, knowing that a higher minimum wage forces up labor costs in better paying jobs, too.”

        ha ha

        and it’s where Conservatives make the “labor cost” argument then let taxpayers pick up the entitlements costs to make up the difference.

        It’s essentially taxpayers subsidizing small businesses labor costs.

        It’s not the “rising tide” argument – it’s the ” horseblinders pretend free market” argument.

        Very, very few people walk away because a burger costs 25 cents more than they think it should. Hells Bells – they pay $5-10 for a glass of wine that costs the owner a buck or less then they won’t share any of that markup with their “labor”…

        I do not blame small business owners from capturing every penny they can from their efforts – busting their own butts and risking their own money – but no more or less than corporate employers who get subsidized to offer health insurance.

        The “we’ll fire poor untrained workers” argument is old and lame almost as bad as the GOP claiming theey’re the fiscally conservatives…. !!!

        they’re just fine with sending the taxpayers the bill for Medicaid for “labor” for small businesses…

  4. TooManyTaxes Avatar

    Even considering the pandemic and impacts on businesses, I suspect giving increases to many workers in metro areas will not cause huge cutbacks and job losses. A lot of businesses underpay their workers vis a vis the value produced by their workers. But the bottom line remains: A worker must produce both short- and long-term value to the employer that equals (make that exceeds) the compensation paid by the employer. If the worker does not do this, the worker is likely to be laid-off or, at a minimum, see hours cut.

    Even the morons in the General Assembly should understand this. A statewide increase in the minimum wage, in a state that includes the D.C. Metro Area, is simply stupid beyond belief. Either the increases are too low for D.C. area workers or they are way too high for rural areas.

    Also, we need to impose major tax penalties on any employer who hires a worker who is not eligible to work in the United States. It’s clear that these people will often work for less than the otherwise applicable market wage. This drives down wages for lower-skilled American workers. A number of economists believe that the recent trend (pre-coronavirus) of increasing wages for lower-paid workers is related to the crackdown on illegal immigration.

    From my point, unless the worker is employed in the public sector, the left prefers illegal immigrants over American citizens and lawful residents. That would be enough to cause my late grandfather to vote for Trump.

    1. LarrytheG Avatar

      re: ” A worker must produce both short- and long-term value to the employer that equals (make that exceeds) the compensation paid by the employer.”

      I think that’s probably true for EVERY worker no matter their pay.

      But when an entire class of workers end up not able to earn enough to pay for housing and health care – and do end up being subsidized by taxpayers – then what?

      1. TooManyTaxes Avatar

        If we enforced E-Verify against employers (which neither party wants to do), we would have higher wages in the country most especially at lower levels.

        Except in a few locations, Tysons landowners are not required to provide “affordable housing” but only “workforce housing.” Both are terms of art. The former is for the lowest income levels. However, in the days when we still had meetings, I’ve heard a number of people, including the Tysons Partnership, indicate they are having trouble finding enough lower-skilled workers that, in turn, puts pressure on landowners/developers to erect some affordable housing in Tysons on a voluntary basis. We shall see what the coronavirus does to this.

  5. djrippert Avatar

    We have a rainy day fund with billions. How about a $5 and $5 deal for businesses? During the Coronavirus pandemic and related state of emergency – any employer willing to pay their employees $10 per hour can pay $5 per hour now with the state paying the other $5 from the rainy day fund. This would be in the form of a loan rather than a gift. The employer would have to pay back the state portion of the payout in the 36 months after the state of emergency ends.

    For better of for worse (mostly worse) our government (at all levels) has done and is doing what it can on the health issues of COVID-19. The economic fallout is the next issue to tackle and the sooner the better. Normally financially health small businesses which go out of business during this pandemic will take much more time to replace than the same business limping along with state government loan guarantees. This is not Schumpeterian economics. This is a black swan event. Government’s first priority must remain the health of the people. However, a near term second priority is to prevent a sudden stop to the greatest extent possible.

  6. LarrytheG Avatar

    If everyone had health care like they do in every other industrialized country on the planet – all of this stuff about small business and the cost of labor would be different.

    If everyone had truly portable health care – like Medicare and Medicaid and Obamacare – the way that Corporations “worked” would change dramatically as people could and would, leave at will for better opportunities.

    The way we do health care in this country leaves us vulnerable during economic cycles and actually endangered in this kind of event.

    People who don’t have health care and work at minimum wages AND the companies they work for become major impediments to economic recovery.

    The idea that the “free market” can “fix” health care is going to come under even more severe questioning.

    1. djrippert Avatar

      The Italians have Medicare for All. How are things going there?

      This has nearly nothing to do with healthcare. A modern and growing economy relies on a certain velocity of money. Jane has a job. Jane gets paid. Jane orders and Uber to take her to dinner. Ivan drives the Uber. Kelly waits on Jane at the restaurant. Now comes coronavirus. The restaurants are closed. Jane doesn’t order the Uber. Ivan doesn’t get paid. Ivan doesn’t buy his daily pack of chewing gum. The Wrigley factory lays off people due to reduced demand. &tc &tc

    2. TooManyTaxes Avatar

      Why the devil do I need to give up federal employee health insurance that my wife worked about 40 year for to get some crappy government run health care system? Or pay higher taxes above and beyond premiums to support an inefficient government program? I heard New York’s dip**** mayor complaining about the crappy job the feds are doing on coronavirus and, with the next breath, he extols the virtue of the feds taking over all of health care. Which way is it Bill?

      Obama set the foundation for any problems faced by Obamacare now. To pander to activist groups, he ignored cost reduction in favor of loading up plans with all sorts of coverage requirements that pushed premiums high for younger people. And, guess what, they stayed away. Common sense indicates that developing policy offerings that were less expensive and covered less would have attracted more younger people to the program. And once a person is insured, he/she is likely to keep buying insurance as they grow older. But Obama wanted to load up coverage to signal his virtue.

      And how could Italy have major coronavirus problems? They have nationalized health care that covers everyone!

      1. LarrytheG Avatar

        TMT – I never advocated that you give it up but that you have the OPTION of buying portable insurance.

        Your govt insurance, by the way, is subsidized. taxpayers are paying for your insurance.

        Medicare, by the way, is more efficient than employer-provided. Virtually all insurance reimbursement is based on Medicare reimbursement numbers.

        Obama TRIED to do SOMETHING because the GOP would do nothing and after he did do something, they did their best to damage and kill it and had no other viable replacement.

        It’s okay to criticize if you got a better approach but if you do not then what are you actually in favor of? “I got mine, screw you?”

        1. TooManyTaxes Avatar

          I don’t care if people can have an option to buy health insurance independently. But a lot of people think those of us with good employer-sponsored insurance need to sacrifice what we have to make things equal.

          Obama f’d up health insurance reform just like James Buchanan f’d up southern succession. If Obama would have come up with cheaper plans with less coverage along with more expensive plans with more coverage, the take would have been better. But he needed to virtue signal and cover everything. That, in turn, caused premiums to jump and younger people to opt out. A vicious cycle began. Now we have dirt bags like Sanders and his supporter Wexton calling for single payer. Obama’s decisions caused the mess.

          Taxpayers are paying for my insurance! Well, in the first place, 47% of Americans don’t pay any income tax. Ergo, they don’t subsidize me. We pay federal taxes at a pretty healthy rate. I guess maybe Mark Warner, Jeff Bezos and Mike Bloomberg may be paying more taxes because health insurance premiums paid by employers. But they tend to think the rich need to pay more.

          1. LarrytheG Avatar

            You have to be willing to let others have the same govt benefits you have. You cannot close the door on them.

            Obama did not “f” up anything. We had millions of people with no health insurance and many people dying because they could not get simple things like cancer screenings and others going bankrupt over their medical bills.

            Your health care is subsidized a number of ways that people who don’t pay income taxes are not and thus they have no insurance or get medicaid.

            Here’s how you are subsidized:

            1. – the money you spend on health insurance is not taxed – no federal , no state and no FICA. Those who “do not pay income taxes” have to pay for their insurance with taxed money.

            You end up with a de-facto 40%+ discount.

            2. – Next – you don’t pay a premium commensurate with your age – you pay the same premium that a 24 year old pays.

            3. – Next – you are guaranteed insurance no matter your health status or age.

            If Obama “f”ed up – what did the folks who did nothing do? He tried to provide insurance to people who did not have it and folks like you opposed it – even though you had no alternative proposal – just keep those folks from getting insurance.

            If the folks who opposed Ocare had an alternative that provided health insurance to people – on the same basis that you get yours – it would have been fair to be critical to Ocare. When you oppose something and have no alternatives, what is that?

            I understand the frustration that many have because health care is complicated and hard – but every single one of us should care enough about others who also work for a living that they can get at least the same treatment from the govt on health care.

            If the govt is going to guarantee you health insurance why would you be opposed to them doing the same thing for others?

            Come on TMT – this boils down to “I’ve got mine, screw you and oh by the way Ocare sucks also”.

            this is one of the reasons why we are divided. .. it’s this attitude towards others.. that somehow they “deserve” to not have health care … because….. that’s just wrong guy.

          2. TooManyTaxes Avatar

            Yes, Larry, Obama screwed up health care reform. You are taking a position that, unless Obama did what he did, he couldn’t address reform. That makes no sense. As president, he had the choice of focusing on making health care more affordable or expanding coverage. One could lean one way or the other on this but doing both at the same time was impossible.

            Obama chose to load up plans with all sorts of requirements and not just coverage for pre-existing illnesses. Those additional requirements pushed up the cost of purchasing insurance and people balked. They voted with their feet. As fewer people joined, the premiums went up. They had to under this strategy for Obamacare.

            People who don’t pay federal income tax don’t subsidize anyone. When you pay nothing, that nothing doesn’t subsidize anyone. And everything they get, except for Social Security and Medicare Part A upon retirement, is subsidized by other people.

            Your argument about not paying age-related premiums falls apart. When my wife was young, she paid premiums that were not age related. So now that she’s older, she is on the other side of the curve. But you can’t focus on one side and ignore the other.

            I posted what I would have done if I were Obama. I’d would have offered a lower-cost, lower benefit plans that would attract younger people. I would have covered pre-existing conditions but not gender changes and the all bells and whistles that make coverage more expensive. I would have included tort reform and no-fault payments for medical problems. That would have cut down on the expensive testing that drives up premiums. I would have stood up to big pharma and made them sell drugs in the United States for the same price as they do in other first world nations.

            And No, I’m sick and tired of hearing how I need to give up this, that and the other thing for the common good. We are divided because the left wants to signal virtue with other people’s money. Stop employing illegal immigrants and wages at the bottom will rise and we’d need less taxpayer subsidies.

  7. LarrytheG Avatar

    Italy is one of about 35 industrialized countries so maybe wait and see how the other industrialized countries like Spain, Japan, Germany, Australia fare but I acknowledge your point.

    But when people do not have health care and cannot afford a doctor – they do not get checked when they are sick – they put it off and still go to work, serve customers, get groceries – and spread disease then when they get really sick they go to the ER and infect everyone at the ER … etc..

    When the advice is that if you THINK you might have the virus to call your doctor – what doctor?

    so it does matter.

    But in some respects the minimum wage argument is hypocrisy on steroids when we talk about affordable housing, food stamps, and MedicAid.

    We say that small business “cannot afford” to pay minimum wages and will have to lay off “labor” – so then who ends up responsible for those unemployed? You and Me, that’s who. We’re gonna pay their health care, food and housing OR we can still do it and also give small business cheap labor subsidies.

    there’s your “velocity of money” argument… taxpayers pay……..

    do I want to pay 25 cents more for a burger or just give someone 50 cents for their needs?

    somewhere in the middle of all of this is some common sense but it escapes those who are ideologically inclined sometimes.

  8. LarrytheG Avatar

    re: ” TooManyTaxes | March 20, 2020 at 4:55 pm |
    Yes, Larry, Obama screwed up health care reform. You are taking a position that, unless Obama did what he did,”

    He had to get it through Congress.. it was Congress that configured it.

    but no matter how you cut it the folks who opposed it had no viable alternative and were more than happy to let people continue to be uninsured.

    Who you want to blame more -something that Obama actually did or the others who did nothing and were fine with letting folks stay uninsured.

    You wife enjoys premiums that are not set according to her age. That my friend is a “liberal” idea not a Conservative one. Conservatives who opposed ObamaCare made a point over and over that the young and healthy are subsidizing the older and less healthy – that was their primary argument against ObamaCare so Obamacare was actually changed to account for age and that’s one reason why premiums cost more.

    The idea that people don’t pay income taxes is another phony one. People who make 15K do pay income tax. The ones that do not are the ones who have kids – they do not and their subsidies are across the board. Medicaid pays for their birth, then their health care and other subsidies pay for food stamps and free & reduced lunch.

    But we are talking about a lot more people than that – a lot of people who DO work 40-60 hours a week and do not have health insurance or cannot afford it and if they get sick or hurt – you and me pay for their health care.

    There are two points here:

    1. – should everyone get the same treatment from the govt on something that is so fundamentally important as health insurance? What justifies you getting a better treatment than others who also work hard for a living?

    2. – Because these folks don’t get the same treatment from the government, when they come up short and end up with expensive medical bills – you and I pay for their health care – and if they lose their jobs – you and I will pay for even more of their entitlements.

    It’s in YOUR best interest to support equitable treatment of ALL workers when it comes to government rules and subsidies.

    If the private sector had their way – they would deny health insurance to you and your wife and me – solely because of our ages. That’s the way insurance works unless the govt steps in – like they have for Medicare as well as your Govt-subsidized insurance. The only reason you have it is because the govt forces the insurance company to cover you. Otherwise, you’d not be able to buy insurance at all or it would cost so much you could not afford it.

    It’s the govt that protects you on that.

  9. Nancy_Naive Avatar

    In 1970, a person could work a minimum wage job, and pay tuition and books, a share of rent, subsist, and graduate debt-free from a 3rd tier Virginia State school. I did it.

    Why do you hate your grandchildren so much that you would deny them the ability with a minimum wage that has been diluted 50% since then?

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