Worst Possible Time for a Minimum Wage Hike

Written for Bacon’s Rebellion by, James A. Bacon

As Virginia businesses contend with event cancellations, widespread self-isolation, and other fallout from the COVID-19 epidemic, Governor Ralph Northam has a critical decision to make: Does he sign minimum wage legislation into law or not?

Even as the epidemic began spreading in the United States earlier this month, the General Assembly saw fit to pass a law that will increase the state minimum wage in increments from $7.25 an hour to $15 an hour by 2023. Business lobbies opposed the legislation on the grounds that it would impose a crushing burden on many businesses, especially those that employed low-skilled workers.

Now, some two weeks later, public concern about the epidemic is focusing on the economic impact of the social-distancing strategies pursued to contain the spread of the virus. Here in Virginia the hospitality, retail, and restaurant industries are expected to get hammered as people curtail travel and dining out, and as emergency measures severely restrict business operations.

According to the Bureau of Labor Statistics, 42% of leisure and hospitality workers were paid minimum wage in 2018, as were 21% of retail workers nationally. Emergency virus-containment measures have been in effect only a few days, and employers in those industries already are cutting shifts, suspending work and laying off workers. The economic carnage is expected to be so severe that the Trump administration has proposed as much as $1 trillion in aid to keep the economy afloat.

It is hard to imagine an economic policy more counter-productive — more calculated to inflict incalculable harm — than increasing the minimum wage at a time like this.

Northam expressed support for a higher minimum wage in his State of the Commonwealth address in January. The unemployment rate in Virginia was 2.7% at the time, the economy was growing, and one could argue plausibly that employers could absorb a doubling of the minimum wage with minimal disruption. But that was before anyone imagined the economic pain inflicted by the epidemic-containment measures.

The economic circumstances are totally different today. Boosting the minimum wage would crush the very industries that most need help. At the very least, Northam should ask the General Assembly to delay implementation of the wage hikes to 2021, when, hopefully, the crisis will have passed.

Update: Steve Haner points out in the comments that the minimum wage increase would not go into effect until Jan. 1, 2021. That is certainly a consideration. While medical aspects of the coronavirus crisis may have passed by then, however, it is not at all clear how much the economy will have recovered. Recovery hinges upon unknowns such as the number of enterprises that go out of business between now and then.