When Joe Biden was sworn in as the 46th president of the United States Wednesday, he inherited an economy that, despite a brisk rebound, still faces significant problems.
In Minnesota, November’s seasonally adjusted unemployment rate of 4.4% is a notable improvement on the 9.9% recorded in May. But, to some extent, it reflects the 35,525 Minnesotans who drifted out of the labor force completely over that period and no longer count toward the unemployment rate. The labor-force-participation rate, the share of the civilian non-institutional population which is either employed or unemployed but looking, fell by a percentage point over that period to its lowest level since July 1978.
The priority for the Biden administration, and Minnesota state government, should be getting these people back to work. Sadly, measures contained in Biden’s $1.9 trillion “American Rescue Plan” would make that more difficult.
One of its measures is a temporary increase in federal unemployment benefits from $300 a week to $400 and an extension of this program from March to September. But employers are already reporting difficulties recruiting people, in part, because they make more money on unemployment. And no wonder: the current program results in 48% of recipients receiving more than their lost wage. Biden’s proposal would increase that to 62%.
Another harmful measure is a proposed hike in the federal minimum wage to $15 an hour. The employment effect of minimum-wage hikes is among the most hotly contested empirical questions in economics. But that is partly because research is based on the experience of hikes of much smaller magnitudes than that proposed by Biden, a 107% increase from the current rate of $7.25 an hour. Quite simply, we have nothing remotely similar to compare it to. When the Congressional Budget Office estimated the employment impacts of a $15 hourly federal minimum wage in 2019, it found it would destroy approximately 1.3 million jobs with “a two-thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers.” That’s a huge range. This is no time to run an experiment on the American labor market.
And the harm would not be felt uniformly across Minnesota. While a $15 hourly minimum wage might not be much above the market rate in the Twin Cities, it is far from the norm elsewhere in the state. As a result, any negative employment effects from a 49% hike in labor costs for Minnesota’s large employers and an 83% hike for its small employers would hit especially hard in Greater Minnesota.
The incoming administration’s focus should be on getting the economy going again by vaccinating people. Minnesota has been a particular laggard here. Among Midwestern states, we currently rank dead last for the share of our supply used, according to Bloomberg. Gov. Tim Walz doesn’t have President Donald Trump to blame anymore. Biden aims to have 100 million vaccines administered by the 100th day of his administration, and we all can hope he succeeds.
This is what the incoming administration should focus on like a laser. Hopefully, any final bill will ensure, somehow, that the temporary extensions in unemployment payments really are temporary and that the amount is not increased. The $15 hourly federal minimum wage should be nixed altogether. If not, the surprisingly impressive economic recovery from COVID-19 might be stopped in its tracks.
John Phelan of St. Paul is an economist at the Center of the American Experiment (AmericanExperiment.org), a conservative public-policy think tank based in Golden Valley, Minnesota. He wrote this for the News Tribune.