EDITORIAL: Minimum wage increase hits businesses when they can least afford it

Nevada recently had the highest unemployment rate in the nation. That’s an inopportune time to raise the minimum wage.

The coronavirus shutdown has caused previously unthinkable levels of economic damage. Nevada’s May unemployment rate was 25.3 percent. In June, it dropped to 15 percent. In 2010, following the Great Recession, Nevada’s unemployment rate topped out at 13.7 percent. Everyone wants a quick recovery, but it’s far from a sure thing as the gaming and tourism industry works to bounce back. Lower visitor volumes are likely to lead to significant layoffs throughout casino resorts.

It won’t just be casino workers. Businesses that help put on conventions will have a hard time for the foreseeable future. Gov. Steve Sisolak shut down bars for the second time. Restaurants are still struggling. A wave of foreclosures and evictions seems inevitable. To recover, Nevada’s economy will need every bit of help it can get.

Unfortunately, last year, Gov. Sisolak and the Legislature increased Nevada’s minimum wage starting July 1. The wage floor went from $7.25 an hour to $8 an hour if an employer offers health insurance. If the employer doesn’t offer insurance, the minimum wage jumped from $8.25 an hour to $9 an hour.

As the Reno Gazette-Journal reported, forcing businesses to pay higher wages when their revenues have dropped substantially is a terrible idea. The Gold ’N Silver Inn bills itself as “Reno’s oldest casual dining restaurant.” Even so, Gov. Sisolak’s shutdown hit the restaurant hard. Owner Jeff Paine estimated his revenue fell by almost 70 percent at the beginning of the crisis.

Mr. Paine said the minimum wage hike is “hurting our bottom line immensely. I think you’re going to be hard-pressed to find a restaurant person who isn’t unhappy about this.”

Next year, the situation gets worse. The minimum wage will increase by 75 cents a year annually until 2024. That will leave the required pay rate at $11 an hour or $12 an hour depending on whether a business provides health benefits. Tim Carter, the owner of a Reno-area Ace Hardware store, is concerned that continued hikes will lead to layoffs.

This is the destructive paradox of the minimum wage. When the economy is booming, there’s no need to require increases because wages raise as businesses compete for workers. But when the economy crashes, the minimum wage causes struggling businesses to fail by requiring that they pay inflated wage rates. That doesn’t help anyone.

There’s a simple solution for this. Gov. Sisolak has hinted that he’ll call a second special session once lawmakers resolve the state budget. He should put rolling back or at least pausing Nevada’s minimum wage increases at the top of the agenda.