Now is the worst possible time for a 75% increase in Florida’s minimum wage.
Florida’s unemployment rate was 11.3% in July, the latest monthly statistics provided by the Department of Economic Opportunity. According to a Florida State University survey released in June, one-in-six state businesses have closed for good due to COVID-19. The state’s restaurant, retail and tourism industries, which employ an overwhelming number of entry-level workers and operate on razor-thin profit margins, have been hit particularly hard by COVID-19 as people stay home and have less disposable income.
Everyone wants to help entry-level employees, but there are better alternatives than the proposed constitutional $15 an hour wage floor. Florida’s Amendment 2 would exacerbate economic pain for employers and employees alike.
Last year, the nonpartisan Congressional Budget Office estimated that a $15 minimum wage would cost 1.3 million jobs nationwide. A survey of Florida businesses by the Employment Policies Institute finds that half of the respondents would reduce their employees’ hours to contend with the costs associated with a $15 entry-level wage. One-third would automate jobs. A new analysis by economists David Macpherson and William Even estimates that, if passed, Amendment 2 would cost the state 158,000 jobs.
In other words, a $15 entry-level wage slashes the first rung off the career ladder, which less-skilled employees quickly climb as they learn on-the-job skills such as customer service and tracking inventory. Most entry-level workers earn a wage increase within their first few months on the job. I’ve witnessed this career learning curve innumerable times first-hand as the CEO of Sergio’s Restaurants in South Florida.
The track record of $15 minimum wages in other cities is poor. According to a blockbuster 2017 University of Washington study, Seattle’s $15 minimum wage reduced jobs, hours and earnings of the people it was trying to help. How does a minimum wage increase reduce pay? Because workers received fewer hours in the aftermath. Dr. David Autor, a top U.S. labor economist at MIT, praised the study, saying it had the power “to change minds” on the minimum wage issue.
Daycare providers, which also run on thin profit margins, have especially suffered under a $15 minimum wage. Like restaurants, they can’t simply pass on the associated costs to customers in the form of higher prices. Parents and diners are price sensitive. Seniors, who often lived on fixed incomes, are particularly vulnerable to minimum wage hike-induced price increases. A website called Facesof15.com has aggregated countless real-world victims of the $15 wage floor. The stories of lost jobs and closed small businesses are heartbreaking.
Yet, just because Amendment 2 is the wrong move in practice and theory doesn’t mean that the spirit behind it is misguided. Everyone wants higher wages for those who need them most. We just disagree on the best strategy to achieve this shared vision.
One popular minimum wage alternative that enjoys bipartisan support is the Earned Income Tax Credit (EITC), which supplements employees’ incomes through the tax code, rewarding work without distortionary economic effects. Each year, the EITC lifts almost nine million Americans out of poverty, including five million children. Yet according to the IRS, one-in-five eligible EITC recipients in Florida don’t claim their benefit. Raising awareness of this wage supplement is an easy first step to helping less-skilled workers. Proposed state-based EITC programs, which most other states already have, could aid these workers even more.
A market-based solution that I have suggested is wage transparency. This effort calls on employers to publish their entry-level wage rates so that employees and other businesses can compare them, bidding them up. Employees can more easily “shop around” for higher-paying job opportunities under this transparent model. And employers, who want to reduce employee turnover, can raise their wages to match their competitors.
Businesses would face a strong incentive to join such a transparency compact to ensure they’re paying high enough wages to prevent their employees from being poached. Employers could also more easily attract quality employees from their competitors who are paying less. In addition, employers would be motivated to add more health and retirement benefits to attract and retain employees. The wage transparency solution would also be tailored to the cost of living differences across the state.
Amendment 2′s constitutional $15 minimum wage increase would hurt workers more than it would help. But expanding the EITC, promoting wage transparency and coming together to repair the COVID-19-ravaged economy would boost incomes without side effects. Let’s vote “no” on Amendment 2 and explore better alternatives instead.
Carlos Gazitua is the CEO of Sergio’s restaurants and a member of the Job Creators Network.