Rand Paul does not support a national minimum wage increase — and it’s important to understand why

Rand Paul, the outspoken Republican senator from Kentucky, certainly has controversial points of view on wearing masks, the 2020 election results and government shut downs.

But Paul, who has served in the Senate for more than a decade, also serves as the ranking minority member of the Senate’s Small Business and Entrepreneurship Committee.

An ophthalmologist, Paul sits on this committee not only because he has a background in running a small business (he worked in two small medical practices before running his own in Bowling Green, Kentucky), but also because he passionately believes that our country’s small businesses are at the heart of the American economy. When they succeed, everyone benefits.

So, it’s not surprising that he has very firm points of view about matters that affect small businesses. Take, for example, minimum wages. Paul does not support an increase to the national minimum wage above the current $7.25 per hour level. Regardless of how you may feel on the issue, it’s important to understand why he holds this point of view.

“I think only the marketplace can determine what is the proper wage,” he told me recently while appearing on my podcast, The Paychex Business Series. “Wages are different, whether you live in New York city or Birmingham or Lake Jackson, Texas. They are dependent on the size of the city where you’re located, and the wages are what the market will bear.”

Paul also believes that raising the minimum wage would cause what he calls “institutional unemployment.”

“The unseen aspects of a minimum wage increase is the many people won’t be able to find jobs anymore,” he says. “The workers most likely to suffer are the people with the least skills or other disadvantages.”

Of course, there are many who disagree, including Paul’s colleague and fellow member of the Small Business and Entrepreneurship Committee Corey Booker (D-N.J.). Booker believes that increasing the national minimum wage would put more money in the pockets of workers, and that their spending would benefit the overall economy, including small businesses.

“I basically look at the evidence and I’ve seen cities around this country move towards a $15 minimum wage, lots of predictions, predictions for doom and gloom,” Booker told me. “But we see on the whole that not only has there not been a real significant economic hit to small businesses, but people who are earning those minimum wages were able to spend a lot more into the economy.”

I wish I could say that the data support one side or the other, but they don’t.

Many studies have been published that contradict each other on this issue. For example, in 2017, and in the midst of Seattle’s efforts to raise its minimum wage to $15 per hour, a University of Washington study was released that proved damaging to the supporters of a higher hourly rate, concluding that it would cost jobs.

Yet just a few years later, a study published by the University of California at Berkeley found that minimum wage increases in six U.S. cities (Washington D.C., Chicago, Seattle, San Francisco, Oakland and San Jose) increased pay and did not harm job growth. Depending on where you stand on the issue, you will likely find a study that supports your point of view.

But the reality is that the national minimum wage is at a level that most agree is too low to sustain a livable income. And even though many states and cities have raised their minimums to as much as $15 per hour, there are still 21 states – including Paul’s home state of Kentucky – that have kept their minimum wages at the federal level. Other states, such as Florida and Nevada, have minimums well below the $15 per-hour level. The Biden administration attempted to push through a bill to increase the national minimum to $15 per hour as part of its stimulus package but failed due to congressional rules.

Some people are passionately demanding that employers pay their workers better. Others, including many small business owners, say they can’t afford the cost. The debate rages on. And, frankly, both sides have good points.

As a small business owner located in a state (Pennsylvania) where the federal minimum wage still applies, I’m more in favor of Sen. Paul’s point of view. We live in a big country. Running a small business in Bowling Green, Kentucky, is a lot different than running a business in Southern California. Imposing the same rules at a national level on these two business owners is prejudicial and unfair. Minimum wages should be resolved at the local level, and in a free market, the market should determine the right levels of compensation.

“It’s a negotiation between supply and demand,” Paul says. “The market will create full employment at a certain wage. And that goes up and down depending on the participation of labor and expansion or contraction of the economy.”

Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.