Arguably our first primordial tool, humans owe a lot to blunt instruments. Indeed, the world could not have been built without hammers and such.
But thousands of years ago, even Og and Gog knew a boulder wasn’t an appropriate tool to stake a hide to dry. Alas, in the 21st century, that “appropriate” concept is still lost on the largest and most unwieldy blunt instrument in history: the U.S. government, which has a sad history of inappropriately hammering square policy pegs into round resolution holes. Remember these two legislative pile drivers?
• Sarbanes-Oxley in 2002 was the compliance maul the government used to hit thousands of publicly traded corporations – including small ones – in response to the financial malfeasance of about four bad actors. Even though small public firms could never cause a WorldCom or Enron-type scandal, the heavy “Sarbox” compliance hammer landed hard and prohibitively expensive on existing and prospective small firms.
• Dodd-Frank was the government’s nine-pound sledge against the digital greed of Wall Street and big banks that created the 2008 financial crisis. This bill indiscriminately hammered all banks, including thousands of independent community banks, even though this sector didn’t securitize a single sub-par mortgage or synthesize one credit default swap. Community banks were decimated by Dodd-Frank, with their numbers dropping by two-thirds between 2009-2014 (Fed). And annual new bank charters, which averaged 135 between 2000-2008, dropped to five from 2009-20019, thanks to Dodd-Frank. These are the relationship banks that make most small business loans (ICBA).
If it sounds like the government doesn’t know how to use small tools, buckle up. Because here in the third decade of the 21st century, as if we learned nothing about blunt instruments in the past 20 years, another government hammer is about to come down hard on small businesses and their employees: A $15 per hour national minimum wage is being pushed by the hammersmiths associated with the Biden administration.
There are many reasons why the federal government shouldn’t be in the business of setting wages between businesses and employees, but here are ten big ones. The first two are on top because either one should be reason enough.
1. It hurts small businesses. Recently, when we polled small business owners about how a $15 minimum wage would impact them, we learned that 61% were already paying employees more than that while 39% said such an increase would either hurt or destroy their business. This is the sector that creates half of the U.S. economy, 100 million paychecks, and 65% of all new jobs (SBA).
2. It hurts more people than it helps. Research has proven this point for decades, most recently by the non-partisan Congressional Budget Office. The spanking-new CBO report said increasing the national minimum wage to $15 would raise 900,000 people above the poverty level, while simultaneously putting 1.4 million out of work. Didn’t we have that math problem in the 4th grade?
3. Hitting the wrong nail. The U.S. doesn’t have a wage problem, it has a qualified worker problem. Pre-pandemic, having achieved record levels in both low unemployment and high employment, there were still millions of over-$15 jobs going unfilled for lack of qualified candidates (NFIB, NAM). But even with the economic carnage of the pandemic shutdowns, millions of those jobs are still going wanting. Increasing the minimum wage won’t improve that.
4. Unfair advantage. Remember how Sarbanes-Oxley and Dodd-Frank hammered small firms? Well, a $15 minimum wage suits Amazon, Wal-Mart, Target, and Google just fine, because they can afford it. Plus, it would further increase the advantage they achieved as the pandemic political shutdowns disproportionately hurt Main Street businesses.
5. Cost of living matters. A national $15 minimum wage would disproportionately pummel small employers and employees in fly-over America, not only state-to-state but within a state. A wage that’s barely adequate in marketplaces like New York City or Los Angeles would be well above the norm for employees in small-town America (Pew Research), and likely prohibitive for their small business employers.
6. It’s the Digital Age. In the third decade of the 21st century, even small businesses have technology options that deliver production without payroll. And the cost of hardware and software aren’t subjected to the ignorant and cynical blunt instruments of government – so far. Plus, AI doesn’t get sick and robots don’t join unions.
7. Pressure on all payroll. Raising wages by government fiat creates upward pressure on all payroll, as the minimum wage is the artificial base from which millions of workers compare their earning progress.
8. Bet you never thought about morale and initiative. How does a first-year employee feel who just earned a raise to $15 but is now the trainer of a newbie who makes the same just for showing up day-one?
9. Unions like it. For decades, unions have hammered the national minimum wage into labor contracts to trigger automatic increases from employers. A $15 minimum wage raises payroll for tens-of-thousands of companies without increasing productivity.
10. We got this pandemic going on. Only in Bizarro World would you raise the national minimum wage in the middle of a pandemic, when 10 million people who had jobs a year ago are still unemployed.
The origins of the federal minimum wage, which first became law in 1938, was never some egalitarian blow for the working man. It was a strategic political hammer designed by Congressional delegations representing the New England textile industry as a protectionist move against southern textile interlopers whose lower regional labor costs made them too competitive.
Four generations later, politics continues to wield the minimum wage as an indiscriminate blunt instrument hammering a cynical nail: pandering for votes in the face of mountains of evidence that proves raising the minimum wage is bad economics, and actually hurts the working class it purports to help.
Write this on a rock … Raising the minimum wage will be as harmful as it is unnecessary. And it hurts small businesses disproportionately.