Major Minimum Wage Increase Would Harm Virginia’s Economy Just Like Elsewhere

Feb 9, 2024 by Austen Bannan

While well-intended, government wage mandates hurt more people than they help.

Policies like minimum wages increase the cost of goods and services on lower income families. Plus, these policies deny more people the chance to earn an income by reducing jobs available. When those opportunities close, fewer people gain the skills and experience needed to climb the economic ladder towards successful, fulfilling careers.

Unfortunately, many lawmakers continue to prioritize this harmful policy nation-wide. A majority of states now have minimum wages above the federal minimum wage. Virginia has a $12 an hour minimum wage already, but, on February 2, the Virginia House of Delegates narrowly passed H.B. 1 by a 51-49 vote. The legislation would raise Virginia’s minimum wage from $12 an hour to $13.50 an hour in 2025 and $15 an hour in 2026. Virginia families could face a host of new barriers that jeopardize quality of life and economic growth.

According to Isabel Soto, Policy Director, The LIBRE Initiative, the rise to a $13.50 an hour minimum wage “would lead to job loss between 34,600 and 57,700 jobs.” An increase “to a $15 an hour minimum wage would cost the state of Virginia over 83,000 jobs in the three years following enactment.” This would be highly detrimental to Virginia families – but not surprising. A recent paper states approximately 80 percent of minimum wage research studies show minimum wage increases have negative employment effects.

Extensive research on the effects of minimum wages enacted around the country and at the federal level reveal related harms over time. For instance:

A Harvard Business Review study indicates a 21 percent drop in hours worked for each $1 an hour minimum wage increase, and a significant reduction in health care benefits offered as workers drop to part time work.
Seattle’s minimum wage increase led to less overall income for workers due to decreased hours worked.
A University of Chicago study indicated a 1 percent reduction in employer sponsored health insurance for each $1 increase in the minimum wage.
A 2021 study showed a $15 minimum wage would increase child care costs by $4,736 in Virginia.

Furthermore, those who do earn the minimum wage are typically not the low-income families supporters believe they are targeting:

A 2021 CBO report on a federal minimum wage of $15 an hour estimated 1.4 million jobs would end. Raising the minimum wage would hurt hardest industries harmed the most by the pandemic. Fields such as hospitality and food services usually pay an average hourly wage below $15. Imposing a $15 wage requirement impedes economic growth and hiring in these industries.
Research indicates minimum wages do not reduce poverty. 2/3rds of minimum wage earners are in households with income 150 percent or more above the poverty line while only 1/5th of earners are at or below the poverty line.
Nearly half of minimum wage earners are under 25 years of age. Most get raises above the minimum wage within one year.
Minimum wage recipients are concentrated in highly transient industries. 60 percent of workers earning the minimum wage or below are in the leisure and hospitality industry. (That includingincluding includes restaurant employees that supplement wages with tips.)
A 2019 Bureau of Labor Statistics (BLS) report indicated that only 1.9 percent of hourly paid workers earned the minimum wage–1.6 million workers overall. That approximated only 1 percent of the total workforce (when adding in salaried workers in January 2020). This pales in comparison to the January 2021 unemployment rate (6.3%) or the non-participating portion of the labor force (38.6%).

Instead of focusing on wage mandates that lead to unintended, harmful consequences, leaders in Virginia and elsewhere should work on employment reforms that increase growth and opportunity. These reforms includes occupational licensing reform, increased pathways for self-employment and small business entrepreneurship, and removing degree and other unnecessary credential requirements for public sector jobs. These reforms will help fuel positive changes in the private sector as well. Leaders should prioritize giving workers and businesses the flexibility to create thriving relationships instead of imposing mandates that undermine economic opportunity.

For further discussion on the minimum wage, check out Austen Bannan’s American Potential Podcast episode here: