The Proposed Federal Minimum Wage Hike: Bad for Economic Recovery

Much is being made of the inclusion of a federal minimum wage hike in President Biden’s proposal for a new COVID-19 relief bill. Leaving aside the arguments about whether a crisis recovery bill is the right place for such a long-lasting policy change, its inclusion in the pandemic relief proposal certainly provides some meaningful context to help with analysis of the idea.  

Here in the Capital Region, as in much of the world, the industry that has been hardest hit by the pandemic is that of leisure and hospitality, or precisely the industry that will bear the brunt of a massive minimum wage hike. More than 20% of the jobs in Baton Rouge’s leisure and hospitality industry have disappeared as an effect of the pandemic, mostly in accommodation and food services. The average earnings in that sector currently stand at about $9.50 per hour.  

What does a $15 per hour minimum wage hike mean for this sector? First, it means a more than 50 percent increase in wage costs. Putting that into perspective, that’s an additional $100 million in additional annual payroll costs just for the Baton Rouge Area’s restaurant wait staff alone. If we go further to include food prep workers, hosts, barbacks, hotel cleaning staff, and the many other occupations that contribute to this sector, it would be as much as $422 million in increased annual payroll alone. The numbers are startling because the proposal is startling.  

Putting this wage hike in place would be like thumbing one’s nose at the small businesses that are struggling the most during this economic crisis. The immediate effect of the change would sadly be to ensure that many of the jobs lost to the pandemic in this sector would simply never come back. Even more concerningly, it is fair to anticipate that some of the jobs that survived the pandemic would succumb to this final assault.  

It’s important to note that a wage hike such as this is not limited to major corporations like national restaurant chains. Most leisure and hospitality employment in the Capital Region is through small, locally owned businesses, not large national players. The national companies will pivot to automation, eliminating jobs but keeping prices as steady as possible. The small, locally-owned businesses won’t have as many options, meaning not only will jobs be cut, but prices will also rise.  

It’s also important to think about the unique and challenging situation these small business owners currently find themselves in. Imagine your favorite local bar. Faced with this wage hike, its owners would have to pivot from wage-plus-tip payments to straight $15 per hour, all while only being able to seat customers outdoors, only at 25% capacity, during the middle of winter. The wisdom of such a policy is glaringly questionable and will result in the industry making a forced choice between a high number of low-skill jobs to a much smaller number of mid-skill jobs. 

As with the pandemic unemployment expansion put in place by Congress at the early part of the pandemic, the one-size-fits all approach to minimum wage increases is ill-advised.  The wage bases in the 50 states are as different as the states themselves. It makes no sense for Baton Rouge’s wage base to mirror that of New York City, San Francisco, Boston, or Chicago, given that the cost of living here is as much as 50 percent less. Bottom line, legislative creation of $15 per hour jobs doesn’t actually make those jobs a reality. Some businesses will not survive, and the jobs they provide will die along with them. 

Liz Smith

As BRAC’s senior vice president of economic competitiveness, Liz leads the organization’s public policy advocacy, strategy, research, and reform activities aimed at advancing the quality of life and economic competitiveness of the Baton Rouge Region.

Scroll to Top