Editor’s note: The Delaware Senate passed Senate Bill 15 on Thursday, which would raise the wage floor from $9.25 to $15 by 2025. The House is set to hear the bill around April 21.
On Thursday, the controversial Senate Bill 15, seeking to raise Delaware’s minimum hourly wage to $15 per hour, was passed by the Senate, following testimony by dozens of people both in opposition to or in support of it.
The state’s minimum wage was last raised less than 18 months ago, when it was increased to $9.25 per hour — a higher rate than 22 other states and 28% more than the federal minimum of $7.25. If enacted, Senate Bill 15 would dramatically hike the hourly minimum by more than 62% in several large increments over a period of less than four years.
The minimum wage was created by Congress as part of the Fair Labor Standards Act in 1938. In part, the intent was to protect the well-being of employees. Delaware’s current minimum wage appears to meet this goal. A full-time (40 hours per week) minimum-wage worker would have an annual income of $19,240. While modest, this figure is 49% higher than the federal poverty level for a single-person household and 10.45% above the poverty level for a household of two.
In 1938, the minimum wage was initially set at 25 cents per hour — the equivalent purchasing power of about $4.60 today. The minimum wage had its strongest purchasing power in 1968, when the hourly rate was $1.60 — the equivalent 2021 value of about $12.15. Yet, the proposal before the General Assembly would arbitrarily boost the government-mandated hourly minimum another 25% above its historic high-water mark.
Economic forces are both complex and dynamic. Hiking the minimum wage so radically over such a short period of time will have repercussions, reshuffling the deck and creating new winners and losers but not necessarily resulting in an overall positive outcome for Delawareans.
The burden of meeting the new mandate will fall unevenly on businesses. Those that have a significant portion of their costs tied to minimum-wage labor are going to be most impacted. According to federal statistics, the majority of minimum-wage workers are those involved in food preparation and service, retail sales and personal care.
Raising the minimum wage by more than 60% is not an isolated act. With entry-level workers making $15 an hour, wages for positions requiring more skill and experience will also have to increase, creating a ripple effect through the compensation structure of businesses, nonprofit groups and government agencies. Any analysis of this proposal’s expense needs to recognize this reality.
Successful businesses are the ones that effectively manage costs. Dramatically increasing labor costs will cause business owners to adjust, translating to fewer positions and reduced hours.
According to a report issued by the Congressional Budget Office on a federal minimum-wage hike bill closely resembling Delaware’s measure, for every person raised out of poverty by the hike, 1.5 jobs would be lost.
Dozens of cities — such as Los Angeles, Seattle and Washington, D.C. — have already mandated a $15-per-hour minimum wage, providing valuable insights. University of Washington researchers studied the effect of the mandate on Seattle’s child care businesses when it was only partially phased-in at $13 an hour. The study found that the most common response was to raise prices and reduce workers’ hours and/or the number of staffers.
As reported in Forbes, a paper published by the American Economic Review concluded that the implementation of the $15 minimum-wage hike in Los Angeles, Seattle and San Francisco would result in respective employment declines of 3%, 2% and 1%. L.A. was most affected because it had the highest percentage of low-wage jobs. The study also found that those earning the least — workers whose wages were initially the furthest below the new minimum — were the ones most likely to experience job losses.
Further, a survey of leading U.S. economists commissioned by the Employment Policies Institute (EPI) found little support for a $15-an-hour minimum wage. Nearly three-quarters of the respondents opposed the mandate. The majority of surveyed economists believed a $15-per-hour minimum wage would have negative effects on youth employment levels (83%), adult employment levels (52%) and the number of jobs available (76%).
Unskilled jobs are also likely to be lost to automation in the wake of minimum-wage increases. A paper published by the National Bureau of Economic Research, based on 35 years of analyzed data, found that hiking the minimum “increases the likelihood that low-skilled workers in automatable jobs become unemployed or employed in worse jobs.”
When the Delaware General Assembly considers enacting this mandate, it should do so with all the facts in its possession. A fiscal note — a report detailing how much legislation will cost taxpayers — should be attached to the bill prior to debate.
Lawmakers should also know the costs their actions will impose on private businesses, especially small, locally owned businesses. We believe a minimum-wage increase will disproportionately impact such enterprises. Large corporations can more easily absorb a cost increase, especially when the expense is confined to a single, small state. The Office of Management and Budget should be tasked with compiling this report prior to any further debate.
Before legislators casually redistribute the resources of Delaware’s private-sector job creators, they have an obligation to know precisely who is picking up the tab for their largess.
Ruth Briggs King is a Republican representing Georgetown. Mike Ramone is a Republican representing Newark.
