Impacts of raising the federal minimum wage
Potential effects on small businesses and consumer goods
TYLER, Texas (KLTV) - One of the bills Congress is considering from President Biden’s first weeks was an act to gradually raise that wage to $15 an hour by 2025. The federal minimum wage has stayed at $7.25 since 2009. Over 20 states have their own minimum wage laws that are higher than the federal rate, and Texas isn’t on the list.
Professor of Management with UT Tyler, Dr. Harold Doty, tracks economic trends and spoke with us about his take on raising the federal minimum wage. He says this boost in income will help minimum wage workers, but it will ultimately hurt that same group of people. As bigger companies opt for convenient technology to replace workers, he says small business will take the biggest blow.
“Where it’s a family business or single owner, and all of a sudden your employee costs go up, you’ve got to make up that money somehow. And that’s going to happen, probably, by reducing the number of people you employ,” says Dr. Doty.
He adds that a federal minimum wage affects everybody and he suspects it’ll increase the prices of your products, too.
Although the goal is to benefit millions of workers by paying a wage higher than the current minimum of $7.25 several millions could lose their job. If the minimum wage is increasing, Dr. Doty with UT Tyler says you can count on the price of goods to go up, too. Dr. Doty explains why he believes it’s likely we’ll see the price of our dinner rise by using the restaurant industry as an example.
“In Texas right now,” he says, “the minimum wage that an employer pays to someone who works for tips in a restaurant is $2.13 an hour, that’s going to go to $15 an hour. That’s going to have a huge effect on the costs in a restaurant. Restaurants will simply have to raise their prices to make up the difference, they can’t afford to do it any other way.”
According to Dr. Doty, this will lower demand and we’ll see a slight reduction in overall economic activity. He also adds that while raising the federal minimum wage will help a lot of people, it’s important to keep account of the potential negative impacts this will have on people and the economy.
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