The Heartland Institute
February 25, 2021
Chairman Noland and Members of the Committee:
Thank you for holding a hearing on House Bill 284, legislation that proposes raising the state’s minimum wage from $8.75 per hour to $15 per hour, which is also subject to an annual cost-of-living adjustment.
My name is Samantha Fillmore, and I am a State Government Relations Manager at The Heartland Institute. The Heartland Institute is a 37-year-old independent, national, nonprofit organization and our mission is to discover, develop, and promote free-market solutions to social and economic problems. Heartland is headquartered in Illinois and focuses on providing elected officials on all levels reliable and timely research on important policy issues such as minimum wage hikes.
Minimum wage laws attempt to create a minimum standard of living to protect employees’ health and well-being by mandating a base level of pay from employers to certain covered employees. Minimum wage laws are highly disruptive, artificially manipulating pay and the workforce in an attempt to combat poverty. Policymakers must consider the serious consequences a minimum wage increase can have on employment rates and economic growth.
Minimum wage hikes also impose a myriad of unintended consequences to all businesses, especially small businesses—the lifeblood of the American economy. Minimum wage increases force businesses to reallocate their costs to cover the increase in employees’ wages, ultimately forcing them to alter spending elsewhere to offset their newly increased labor costs. More times than not, this results in less hiring, a reduction in work hours, and increasing prices for consumers. For many small businesses, a minimum wage hike will lead to bankruptcy, as they are no longer able to remain profitable due to substantially increased labor costs.
At the national level, a recent report from the Employment Policies Institute (EPI) found that a minimum wage of $15 per hour would cost the U.S. economy two million jobs when analyzing the economic effects of a federal $15 per hour minimum wage. The EPI study notes that of those two million, the jobs most likely to vanish are those in the restaurant and hospitality industries. Considering that these two sectors were decimated by the pandemic, this would be a foolish decision. Forcing businesses in these industries, particularly small businesses, to drastically raise their labor costs would devastate the few that have hung-on during this harrowing period.
Every state experienced some degree of state and federally imposed lockdowns and shelter-in-place orders due to the sudden onset of the coronavirus pandemic, which sent shockwaves throughout the small business ecosystem that are still being felt. Therefore, a minimum wage hike in 2021 could not be more ill-timed. In an analysis based on self-recorded closures in their database, Yelp estimates that 60 percent of U.S. businesses that have closed since the start of the COVID-19 pandemic have shut down permanently.
It is unwise for Montana lawmakers to push minimum wage hikes, which result in business closings and increased unemployment, especially when joblessness has skyrocketed due to the ongoing pandemic. According to a brief published by the Congressional Research Service, during the pandemic, the unemployment rate has reached catastrophic levels, unseen in decades. Even more worrisome, the U.S. labor participation rate has fallen precipitously since the onset of the pandemic. More specific to Montana, almost every major industry had less employed in 2020 due to COVID-19 contraction, with specific emphasis on food, retail, and small businesses, according to the Bureau of Business and Economic Research.
Although attempts to bolster a minimum standard of living and protecting low-skilled workers in a pandemic-world are laudable, the overall economic effects of proposed minimum wage hikes accomplish neither of those worthy goals. Arbitrary minimum wage hikes, out of sync with the laws of supply and demand, would do little to lift Montanans from poverty while destroying jobs in the state. As such, legislators in Montana should consider all of the economic turmoil and social harm that the passing of House Bill 284 would inflict.
Thank you for your time today.
For more information about The Heartland Institute’s work, please visit our websites at www.heartland.org or http:/news.heartland.org, or call Samantha Fillmore at 312/377-4000. You can reach Samantha Fillmore by email at [email protected]