Proposed Federal Minimum Wage Raise and its Effect on Retailers
During his 2020 campaign, now President Biden promised to raise the federal minimum wage to $15 an hour, something progressives have long been proposing. The Democratic-held House of Representatives introduced and passed the Raise the Wage Act in 2019, but the bill never reached a vote in the then-GOP controlled Senate.
Currently, the federal minimum wage is $7.25 an hour and has not been raised by Congress since 2009. The Raise the Wage Act, reintroduced to Congress on January 26, 2021, proposes incrementally raising the federal minimum wage until it reaches $15 an hour by 2025. Proponents of raising the federal minimum wage argue that the wage increase will significantly boost earnings of many Americans with minimal adverse impact on employers and businesses. The recently confirmed Treasury Secretary Janet Yellen told Congress at her confirmation hearing that the minimum wage increase would have a minimal impact on job loss, if any. However, a 2019 report from the Congressional Budget Office (CBO) theorized that a minimum wage hike could cost 1.3 million Americans their jobs while also noting a pay boost for 17 million low-income workers.
Currently, 29 states and the District of Columbia have minimum wages above the federal minimum wage of $7.25 per hour. Several states, including California, Massachusetts, and Florida, have already passed legislation to reach a $15 minimum wage over the next several years. What does a higher minimum wage, whether at the state or federal level, mean for retailers? Nearly 23% of minimum wage earners work in retail, with another 37% working in the hospitality industry. Some large retailers, including Amazon and Target, have already raised their employees’ starting wages to $15 an hour.
Some smaller businesses, as well as nationwide chains, believe a $15 minimum wage would be detrimental to their bottom line and cut into profits already weakened by the COVID-19 pandemic. Critics of the wage raise argue that businesses and retailers will need to adjust paying their employees higher wages by hiring less workers or automating jobs (e.g., more self-checkout kiosks), which they argue will lead to job losses for American workers. Another criticism of raising the minimum wage is that the average American consumer will pay higher prices for groceries and household goods. However, others say that higher wages will allow retailers to retain higher quality employees, which they argue would in turn reduce overall costs associated with hiring and training new personnel. Additionally, a wage increase for millions of Americans would mean more spending money going back into the retail economy.
As initially proposed, the Raise the Wage Act of 2021 would need the support of all 50 Democratic senators plus at least ten Republican senators to pass through the Senate due to hurdles imposed by the “Byrd Rule.” However, the CBO just recently indicated that because the Raise the Wage Act would have a sizeable impact on the budget, the Act could be passed through reconciliation, which would only require all 50 Democratic votes to pass. While the future of a federal $15 minimum wage remains unclear, retailers may need to start planning for the possibility of a $15 federal minimum wage and what it means for their business.