A recent report found that doubling the minimum wage would help some workers while hurting others. Should we raise the minimum wage? And if so, how high?
August 11, 2019
In 1938, President Franklin D. Roosevelt signed into law the Fair Labor Standards Act (FLSA), which established the first minimum wage requirement in the U.S. It guaranteed workers 25 cents an hour, or $4.45 in today’s dollars. The law covers most workers, with exceptions for students, people with disabilities, and, notably, those workers who receive tips, like restaurant and hotel employees.
Since then, Congress has raised the minimum wage 22 times, but the increases have not kept pace with the rate of inflation. Furthermore, the last increase in the federal minimum wage, to $7.25 per hour, came ten years ago in 2009. This past June marked our longest-ever stretch without an increase.
In recent years the $15-per-hour minimum wage has become a rallying cry for low-wage workers in all kinds of industries. When groups like the union-backed Fight for $15 began organizing fast food workers in 2012, many observers dismissed them as unrealistic. But now, the Fight for $15 movement has gone mainstream. All but one Democratic presidential candidate supports a $15 federal minimum wage. The lone dissenter, entrepreneur Andrew Yang, proposes a universal basic income instead.
Representatives in Congress are also pushing for what they say is a long overdue adjustment to match the rising cost of living. In July, House Democrats passed the Raise the Wage Act, which would more than double the federal minimum wage to $15 per hour, phase out the lower minimum for tipped workers, and tie future changes to the median wage. The bill, however, is unlikely to pass the Senate due to Republican opposition.
The push for a higher minimum wage is a partisan issue in Congress now, but that wasn’t always so. The last increase was signed into law by Republican President George W. Bush with support from many members of his party. In California, a conservative tech millionaire named Ron Unz led the fight for a higher minimum in his state on the grounds that taxpayers fund social welfare programs for the poor when companies should be paying a living wage instead.
Public opinion is on the side of an increase. In a January poll, 82 percent of people said they favored raising the minimum wage, with 55 percent supporting $15 and another 27 percent supporting a smaller increase. Those figures included strong support from Republican voters – 70 percent of them want an increase, and more than a third favored $15.
In addition to federal minimum wage rules, cities and states have the option of setting higher minimum wage requirements of their own. As of January 2019, 29 states and the District of Columbia had a minimum wage rate higher than the federal rate.
Despite the publicity generated by the Fight for $15 campaign, many people remain opposed to raising the federal minimum wage for a variety of different reasons. Here are some of the strongest arguments on both sides.
“We should increase the federal minimum wage to $15 per hour.”
One argument in favor is based on housing costs. Nowhere in America today can a person working 40 hours a week at the federal minimum wage afford a two-bedroom apartment. In only 28 counties is a one-bedroom apartment affordable on $7.25 an hour. Advocates for a higher minimum wage argue that a person working full-time ought to be able to afford to rent an apartment.
Other arguments are based on alleviating poverty. The U.S. Bureau of Labor Statistics says there are 9.5 million working poor in America today – that is, people working full-time or looking for work for at least half the year, but still living below the poverty line. Because the federal minimum wage has not kept pace with increases in the cost of living, it simply does not enable low-wage workers to afford necessities like food and housing.
Advocates for raising the minimum wage say it will unquestionably reduce poverty. One widely cited study found that every ten percent increase in the minimum wage would lead to a five percent decline in the poverty rate. Supporters of the Raise the Wage Act say it would raise pay for 33 million people, including 19.6 million full-time workers. They dispute the notion that it would cost jobs, citing research showing that few, if any, jobs would disappear.
Many economists also point to a likely economic boost. The Federal Reserve Bank of Chicago reported that increasing the minimum wage by $1 per hour would result in $2,080 in additional spending by households including minimum wage workers, with a particular jolt coming from black and Latino households. Another report by The Century Foundation concludes that even small, incremental increases in the minimum wage would yield greater business earnings and broader economic growth.
Writing for The New Republic, Bryce Covert sums up what many advocates of increasing the minimum wage believe: “Even in our robust economy, a quarter of American adults say they are either just getting by or struggling to do so; 14 percent of those who work as many hours as they want still say they struggle financially. About 40 percent would have difficulty covering an unexpected $400 expense. This is true despite the fact that job creation has been on its longest streak in history and corporate profits have climbed to record highs. What’s the point of a thriving economy if so many people are left in financial deprivation and economic insecurity?”
“A federal minimum wage of $15 is too high.”
On the other side, opponents warn that raising the minimum wage will slow economic growth and cause job losses. According to the Heritage Foundation, a conservative think tank, a $15-per-hour minimum wage would kill about 9 million jobs nationwide, with low wage workers bearing most of the loss. A different analysis of the Raise the Wage Act by the Congressional Budget Office concluded that while a $15 minimum wage would lift 1.3 million people out of poverty, it would also result in 1.3 million job losses.
Two experts, David Neumark of the University of California, Irvine and William Wascher of the Federal Reserve Board, wrote an entire book, Minimum Wages, on this subject. They argue that increasing the minimum wage hurts the lowest skilled workers who have the fewest options in the job market. According to their research, raising the minimum wage by ten percent would result in a two percent reduction in employment among young adults, which makes it more difficult for new, less experienced workers to enter the workforce. The best way to increase your wages, say Neumark and Wascher, is to gain education or experience, but increasing the minimum wage discourages both.
Neumark joined with a different economist to issue a separate caution: every dollar we increase the minimum wage will be met with a .43 increase in automatable jobs. In other words, making human workers more expensive will make robots more attractive. A quarter of American jobs are at high risk of automation already, including many in industries like food service, office administration, and transportation. Increasing the minimum wage may only accelerate the shift to robotic workers.
Business groups say that higher labor costs will simply be passed on to consumers. Small businesses in particular report that they will raise their prices in order to manage higher wages. That begs the question: will beneficiaries of a higher minimum wage end up paying more for goods and services, ending up no better off in the end?
Some opponents of the minimum wage agree with the goal of raising living standards, but believe that the minimum wage is not the best way to do it. Many economists support improving the Earned Income Tax Credit (EITC) as an alternative to raising the minimum wage to $15 per hour. The EITC gives workers a tax credit equal to a percentage of their earnings up to a maximum dollar amount, with benefits that increase with family size.
Supporters point out that the EITC avoids many pitfalls associated with minimum wage rules. It does not reduce hiring, trigger layoffs, increase prices for consumers, or provide benefits to people who are not in real need (like middle class teenagers working a summer job). Importantly, the tax credit, unlike higher wages, does not reduce workers’ eligibility for other forms of assistance, like housing vouchers. That said, there are many ways to improve the EITC, including paying it more than once per year.
Based on the 2019 poll noted above, it is clear that most Americans don’t want to see people work full time and still struggle to pay rent and buy food. Furthermore, many states have acted on their own as the federal minimum wage has not changed. In future years, discussions of the minimum wage, EITC, and their relationship with other anti-poverty measures will continue to gain importance.
Economists Weigh In: Ask five economists a question and you’ll get five different answers. Here are a few perspectives from experts with different backgrounds and approaches – via The Atlantic
Laboratories of Democracy: In 2014, Seattle was at the forefront of the movement to raise the minimum wage, passing a law to raise it to $15 an hour by 2021. So, how did it go? – via Vox
Beware the Consequences: One researcher takes a hard look at the claims made by advocates for raising the minimum wage. While it would benefit some workers, she said, the overall impact would be negative – via PBS
A Living Wage: There is no official definition of what a living wage is, so one professor created an online tool that estimates how much a typical family needs for food, childcare, medical care, and other necessities in every county in the U.S. – via Massachusetts Institute of Technology
Minimum Wage Tracker: Minimum wage laws are changing rapidly across the country. This interactive map shows the current minimum in each state and provides details on any planned future increases – via The Economic Policy Institute
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This article originally appeared in the August 11, 2019 issue of Wide Angle, our regular newsletter designed, we hope, to inform rather than inflame. Each edition brings you original articles by Common Ground Solutions, a quiz, and a round-up of news items — from across the political spectrum — that we think are worth reading. We make a special effort to cover good work being done to bridge political divides, and to offer constructive information on ways our readers can engage in the political process and make a difference on issues that matter to them.
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