(This post originally appeared on The Guardian)
A longtime client of mine, a lifelong Republican, an ardent supporter of Donald Trump, said something very unusual to me the other day. He said: “I support a national $15-an-hour minimum wage.”
This comment kind of seemed out of character. My client runs a 100-person manufacturing firm. He is very conservative in his opinions. He hates “big government”. He opposes the regulations and spending supported by Democrats. He’s a good person, a smart business owner and a fair employer. He strongly feels he should be in charge of his employee’s wages, not “some bureaucrat in Washington”. He would not seem to be the kind of person that you would think supports a higher federal minimum wage.
So why does he? Is this some form of latent altruism? Is it because he wants more pay equality and better income distribution? No, those are not the main reasons. For him, a business owner, it’s all about competitiveness. A $15 per hour federal minimum wage would “simply level the playing field”, he says.
My client’s business depends on hourly workers. It is located in New Jersey, where the state minimum wage is already $10 per hour ($2.75 higher than the national level) and slated to go up to $15 within the next three years. Like the business owners there – and other states bracing for similar increases – he’s struggling to adjust his cost structure. He has to do this because he’s at a serious competitive disadvantage.
That’s because most of my client’s competitors aren’t located in New Jersey. They’re located in Alabama, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky and Louisiana. Or Mississippi, New Hampshire, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Wisconsin and Wyoming.
These are all the states where the minimum wage is equal to the federal $7.25-an-hour level. Because those companies aren’t required to pay a higher minimum wage, their cost structures are lower. Therefore, they can charge less. My client has no choice but to charge higher prices for his products in order to make a profit. This is an enormous challenge.
When people argue about the minimum wage they focus on unemployment. Some studies have found that an increased minimum wage has no impact on unemployment. Others have found the opposite. Economists have been looking at this issue for years. But unfortunately no one really and truly knows the answer as to whether or not such a legislation would help or hurt workers – or the companies who employ them.
But what has been missed in all of these analysis is parity. We live in an enormous country with hundreds of millions of people. Up until now, the minimum wage issue has been delegated to the states. Which means that there’s been a growing disparity among wages paid. Companies located in Texas can pay their workers less and, thanks to those relative lower wages, the cost of living in those areas is also less. Thanks to Covid, cloud technology, changing workplaces and a newfound appreciation among many for a better work life balance, more companies and startups are tempted to gravitate to such places.
Unfortunately, this is a big problem for all those companies in all those states (California, Connecticut, Florida, Illinois. Maryland, Massachusetts, New Jersey, New York, Virginia and Washington DC.) that have passed legislation to increase their minimum wage to $15 an hour. According to the US Census Bureau, these states are home to 3.2m companies with employees, or approximately 41% of all the small businesses with employees in the country.
Is it fair that they must pay more for their employees when their American competitors in other states pay so much less? Do you blame these companies for outsourcing work to lower-cost countries just to stay in the game?
So maybe, just maybe, to fix that disadvantage, an increase in the federal minimum wage would actually be a good thing for those business owners. It will level the playing field. It will boost competitiveness. It will keep a lot of work in the United States and not overseas.
“Please,” my right-leaning client says. “Increase the federal minimum wage to $15 an hour. It will be a boost to my business.”