March 03, 2022

Decreasing Prospects for Increasing the Federal Minimum Wage to $15

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Key Takeaways

  • The centerpiece of the Biden administration’s labor and jobs agenda is an increase in the federal hourly minimum wage to $15 an hour.

The centerpiece of the Biden administration's labor and jobs agenda is an increase in the federal hourly minimum wage to $15 an hour.  Last year President Biden, via executive power, instituted a $15 minimum wage for federal contractors, but it has proven a harder lift on Capitol Hill to legislate this rate on the private sector.  To reinvigorate consideration, President Biden called on Congress during his recent State of the Union address to raise the wage rate to $15.  The president also urged lawmakers to end the tipped minimum wage, as well as the sub-minimum wage for people with disabilities, according to a fact sheet put out by the White House in advance of the speech.   

Congressional Democrats have long shared this same goal, but it remains an elusive legislative accomplishment.  The federal minimum wage, therefore, remains unchanged at $7.25 an hour, where it has been since 2009. Given other competing congressional priorities, including a turbulent labor market, supply chain constraints, and rising inflation, the prospect of a major policy change relating to the federal minimum wage is diminishing as we get closer to the mid-term elections. 

As a recap, in January 2021, congressional Democrats, led by House Education and Labor Committee Chairman Bobby Scott (D-VA) and Senate Budget Committee Chairman Bernie Sanders (I-VT), reintroduced the "Raise the Wage Act," which would raise the federal minimum wage to $15 an hour over a five-year period and eliminate the tipped minimum wage.  However, the ability to pass the bill as stand-alone legislation through regular order proved impossible given the narrow Democratic margins in the Senate where the support of 10 Republicans is needed to break a filibuster.

Because of the political stalemate, earlier this year Chairman Sanders sought to advance the wage provision as a part of the budget reconciliation resolution—a procedure that sidesteps the filibuster by requiring only a majority vote to pass the Senate—for President Biden's COVID-19 recovery stimulus package (the "American Rescue Plan").  However, Senate Parliamentarian Elizabeth MacDonough found that the provision violated the rules of the budget reconciliation process and it was stripped out. 

No significant efforts have transpired since that time, which has been welcome news to many employers that are still facing unprecedent challenges.  For example, hospitality industries, such as travel/tourism, restaurants, hotels, and others continue to struggle with crippling economic losses from the pandemic.  At the same time, many hospitality employers of all types and sizes across the nation are struggling with staffing and compensation in response to historic shortages in labor, products, materials, parts and other supply chain challenges, not to mention soaring inflation.  Many are also facing fundamental shifts in consumer demand and worker preferences post-pandemic. 

Republican lawmakers and other critics continue to argue that $15 is an arbitrary political number that would have unintended economic consequences, including burdening small business by increasing costs, reducing employment, and pushing companies toward automation.  National business groups, including the U.S. Chamber of Commerce, the National Restaurant Association, and the International Franchise Association, further argue that raising the federal minimum wage to $15 on already-struggling small businesses attempting to emerge from the pandemic would force them out of business.  Additionally, the non-partisan Congressional Budget Office reported that increasing the minimum wage to $15 an hour by passing the "Raise the Wage Act" would, on net, reduce employment by approximately 1.4 million workers.

Although many congressional Democrats remain committed to a $15 rate, there is no viable legislative pathway in the current Congress.  It is certainly possible, however, that Congress could consider a compromise bill in the future in the range of $11 or $12 an hour or a version that takes into account regional economic realities and differences. In the interim, the proliferation of states and localities raising their wage rates is expected to continue, as is large companies' increasing their wage rates and overall compensation packages to attract and retain workers.

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