Come July, businesses that are already struggling to survive amid the fallout of the pandemic and current unrest could receive a knockout blow. Over 20 jurisdictions — including Illinois, Nevada, Oregon and Washington, D.C. — are scheduled to raise the minimum wage and strain already tight operating budgets with additional payroll costs. The move would be reckless during a bull economy, but should be unthinkable amid current conditions.
Fortunately, some local leaders agree. Several cities across California have already postponed summer minimum-wage increases until 2021. Democrat-controlled Virginia has also jumped on board with the idea and postponed minimum-wage increases initially scheduled for January until May 2021. Other jurisdictions should follow in their footsteps.
Businesses have been dragged through the woodchipper because of the public health crisis — especially restaurants. Nearly every state temporarily shut down “non-essential businesses” and limited restaurant service to takeout and delivery.
As areas allow restaurants to reopen, most are subject to occupancy rules that dampen their ability to survive while dealing with fixed costs. Restaurants are expected to lose a combined $225 billion because of the pandemic — now stretching roughly three months.
Federal relief programs aimed to help businesses weather the consumer drought — including the $650 billion Paycheck Protection Program — have fallen short. Bottlenecks in the application process and strings attached to the funding left many without a sufficient lifeline.
One analysis from UBS predicts 20 percent of restaurants could permanently close. Another finds up to half of small businesses could cease operations within six months. Retail giants — including J. Crew, J.C. Penney and Neiman Marcus — have filed for bankruptcy. In April, businesses were forced to cut 20 million staff members — 27 percent of which were from restaurants and bars. Although federal data from May signaled the economy is rebounding, there’s a lot of ground to make-up.
Given the business pullback, employment prospects for teens looking for a summer job are grim: The unemployment rate for those between the ages of 16 and 19 hit a 72-year high in April. The current unemployment rate for the demographic is not much better at 30 percent.
A professor at Washington University in St. Louis was blunt in his assessment of raising the wage at this time: “Minimum wage increases following a crisis … is likely to make a bad situation worse.”
Even during a good economy, the consequences of raising the minimum wage is well-documented. When businesses can’t pass increased labor costs off to price-sensitive customers, they’re forced to cut back on staff — or close down entirely.
California is ground-zero for such experiments. A statewide minimum increase earlier this year brought even well-established restaurants to their knees. Perry’s, a popular diner in Sacramento that had existed for half a century, shut its doors, citing wage increases. After 14 years of operating, the owners of the popular Greek restaurant Opa Opa! were forced to sell. And Fat City Bar and Cafe was yet another casualty.
Anecdotal patterns are supported by more robust analyses.
A Harvard Business School study found that raising the minimum by just $1 in the San Francisco Bay Area increased the likelihood of an average restaurant closing their doors by 14 percent. For businesses that keep their doors open, a recent report from the National Bureau of Economic Research revealed the policy encourages employers to substitute low-skilled workers with those with more education and training.
The unintended consequences leave Americans who are in most need of a job without one.
A 2019 analysis from the nonpartisan Congressional Budget Office (CBO) more broadly found doubling the national minimum would pressure businesses to shed up to 3.7 million workers. That scenario likely represents a best-case scenario; it’s contingent on a healthy economy. Consequences highlighted by the CBO would be magnified during the current crisis as workers are already holding onto employment by a thread.
A handful of jurisdictions have acknowledged the harm raising the minimum wage will have on businesses and their employees amid the pandemic. It’s time for more states and locales to follow: They need to postpone summer minimum-wage increases until businesses have a fighting chance to survive. Their fate is in the hands of policymakers, not the virus, now.
• Richard Berman is the president of Berman and Co., a public relations firm in Washington, D.C.