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Getting the Minimum Wage Right

Although US President Joe Biden and congressional Democrats didn't manage to keep their proposed $15 hourly minimum wage in the recent stimulus package, they remain fully committed to the policy. But before they move ahead with the proposal again, they should consider some obvious ways that it might be improved.

WASHINGTON, DC – Proponents of a higher minimum wage are well-intentioned in their effort to help low-wage workers. But whether a higher minimum wage would help most workers is debatable. Though it would raise wages for some, it would leave total compensation for others the same and reduce to zero the wages of those who lose their jobs as a result. 

US President Joe Biden has proposed phasing in a federal minimum wage of $15 per hour, up from the current $7.25 per hour, and Republicans have objected. The president’s proposal would more than double the minimum wage over four years, whereupon it would then be indexed to increases in the cost of living (COL).

But there are foreseeable costs to such interventions. A higher minimum wage could finish off many small businesses that are already on shaky ground. It could prompt businesses to cut fringe benefits to offset some of the increase, thus reducing the purported gains to total worker compensation. And it could undercut the competitiveness of US industries in world markets.