In 2012, New York City fast food workers surprised the nation by walking off the job and protesting for a wage of fifteen dollars an hour. Almost no one at that time believed that the soon-to-be-called “Fight for $15” would ever make progress, but now cities, states, and even the House of Representatives have voted to raise the minimum wage to a living wage. The push is about to get even more intense as many Democratic presidential candidates pledge to fight for a fifteen-dollar minimum wage.
With the growth of this movement receiving strong volumes of public support, the debate around raising the minimum wage is becoming increasingly prevalent and relevant. Proponents argue that a living wage will raise income for the working class and create dignified lives for the lowest paid in our society; opponents counter that such a minimum wage would harm low-wage workers by increasing the risk of unemployment and the rate of inflation. However, the fears espoused by detractors are unfounded and overblown, and the benefits of a living wage necessitate its enactment in federal law.
The immediate benefits of a fifteen-dollar-an-hour minimum wage are striking. A Congressional Budget Office (CBO) report supports the conclusion that enforcing a living wage will raise the income of the working class and cause a tremendous reduction in poverty. The CBO estimates that seventeen million workers would see a raise in their average weekly earnings. These raises would amount to a net gain of $7.7 billion in income for families below the poverty threshold, mirrored by a $14.2 billion gain for families between one and three times the poverty threshold. Additionally, an estimated 1.3 million people will be lifted out of poverty by a fifteen dollar wage. One can see from these findings that the arguments in favor of the fifteen dollar wage are true: working families will see an increase in their income and be better equipped to provide for themselves and their families. These gains contrast with Portugal’s freezing of the minimum wage from 2011 and 2014, where the Organization for Economic Co-operation and Development (OECD) reports, “In comparison with other OECD countries, minimum-wage workers had to work a high number of hours to earn enough to move above the relative poverty line.” The OECD report also concluded that the minimum wage freeze hurt low-wage workers overall.
The fifteen-dollar-an-hour minimum wage even has benefits for employers. The nonpartisan Center on Budget and Policy Priorities explains that, “a higher wage may motivate employees to work harder because they feel they are being paid fairly and have more to lose by getting fired.” The Center continues to say how increased efficiency on both the employee-end and the employer-end (through increased training programs and efficiency standards) resulting from a higher minimum wage leads to less job turnover. Job turnover is actually a huge cost for employers, and paying workers a living wage motivates them to stick with the company. The savings from not having to pay as much for worker training, combined with the increased efficiency and productivity of better-paid workers, will translate into significant gains for businesses.
At this point, it is worth examining why the movement for a mandated living wage is so relevant. For the last 40-odd years, America has grown massively wealthy. Productivity and output have soared, resulting in a massive amount of new income; unfortunately, this new wealth has not been shared with the country as a whole. Research from UC Berkeley shows that in the 1993-2000 economic expansion, 45 percent of all the new income generated accumulated to the top 1 percent of income earners. This trend has only accelerated; the 2002-2007 expansion saw the top 1 percent receive 65 percent of the new income, and the expansion following the Great Recession saw the top earners absorb 91 percent of new income. In a similar statistic, the Economic Policy Institute (EPI) calculates the CEO-to-worker compensation ratio was 312-1 in 2017—up extremely from 20-1 in 1965. Perhaps the most pressing data comes from the EPI’s research on the productivity-pay gap.
As shown in the EPI graph, productivity—the adjusted output of goods and services—has seen a massive increase since 1979, while the hourly compensation for the average worker has basically stagnated. A popular economic idea is that a rising tide raises all boats, and a stronger and more productive economy should help everyone. However, what the research on income, CEO-to-worker ratios, and the productivity-pay gap show is that the improved economy has been hijacked by the very rich. The gap between productivity and hourly compensation represents income that could have been—and used to be prior to 1979—shared with all the people who worked to produce it but instead has been stolen by the most wealthy in our society. What a $15 minimum wage does, then, is remedy this severely destructive income inequality by returning more of the productivity of workers to the workers themselves. In short, the living wage not only helps the material standing of millions of Americans, but it also helps correct an extremely unfair and economically precarious system that takes money from the poor and gives it to the rich.
Opponents of the $15 minimum wage have many arguments that, if true, prove very important to the workers the wage would affect. The most common refrain from opponents is that a higher minimum wage would lead to mass layoffs and unemployment spikes, hurting the very workers the wage was designed to help. Despite the fact that the CBO report already shows that aggregate income of low-income earners improves from the $15 minimum wage, it is also necessary to point out that the link between the minimum wage and unemployment is very unsound. As economics professor Alan Manning points out, it is primarily “the textbook model of perfect competition… in many introductory economics courses” that “predicts that raising wages above the level that the market would dictate will move the economy... [to] a place in which there are fewer jobs.” Like the professor says, the idea that the minimum wage causes unemployment makes sense in a simple model where most factors are assumed constant, but things are much more complex in the real world. The Federal Reserve Bank of Chicago has concluded that a minimum wage hike (because it increases low-earning workers’ income) leads to a short-run increase in aggregate household spending, which levels off over time to a level of spending equivalent to before the hike. This spending translates to a Real Gross Domestic Product that is unchanging, and if it is unchanging, unemployment will also remain unchanging as well.
We can see the non-impact of the minimum wage on employment around the world and even in our own country. The UK’s minimum wage law from 1999 has been studied extensively, and the UK Low Pay Commission research has found “no overall ‘genuine’ adverse employment effect, neither on employment and hours nor on employment retention probabilities.” Germany’s minimum wage that was passed in 2015 was found to have “raised the wages of low-wage workers without affecting employment” and even improved employment situations in certain regions of the country. There are also two cities in the United States that already have a $15 minimum wage in effect: Seattle and New York City. These cities reached $15 an hour in 2017 and 2018 respectively, and both have seen no large decrease in employment. On the contrary, New York City employment grew 2.1 percent in the 12 months preceding August 2019 (the latest month for which data is available) and the Seattle area has seen increasing jobs and decreasing unemployment. Although some of this research is preliminary, it does demonstrate that even a $15 minimum wage does not crash an economy or lead to mass unemployment.
Another argument against the $15 minimum wage is that it will cause inflation as companies pass the higher cost of labor onto the consumer. On this point I will concede, slightly. The dual effect of raising business costs and raising consumer spending will keep GDP and unemployment relatively the same, but this will come at a higher aggregate price level in the national economy. However, one needs only to look at history to put this inflation in context. The United States has raised the minimum wage dozens of times in the past, but inflation due to the raises has never gotten to a threatening level. In fact, the only time in modern economic history where inflation has become a major issue is the stagflation crisis around the 1970s. While there are many explanations for the crisis—bad monetary policy, OPEC, and even the Vietnam War—the minimum wage definitely did not cause this period’s inflation. So while a living wage might increase inflation, the effects will not be severe enough to wipe out the gains of low-wage workers.
Several other counterarguments can be rebutted more simply. Some say that a higher minimum wage will motivate companies to automate and outsource their jobs. In reality, all companies are constantly looking to automate and outsource their jobs, the only real limitation is time and technology. Wages has only a marginal effect in employers interest in replacing workers. Some say that the higher minimum wage will hurt poorer or rural areas. However, even in Issaquena County, Mississippi—the poorest in the nation by per-capita income—the annual cost of living for a single adult is $33,486 according to the Economic Policy Institute. This price necessitates a $15 minimum wage.
Another popular counter-argument is that a high minimum wage will hurt teenage workers. This argument is somewhat true, but also somewhat irrelevant. Almost 80 percent of minimum wage workers are adults, and we should not let the teenage cohort gold us back. There are trade-offs for every public policy, but the trade-off of not instituting a living is potentially 1.3 million people staying in poverty and millions of adults not getting a raise. Lifting people out of poverty and improving the standard of living for millions is an acceptable trade for teenagers having a slightly tougher job market.
Although it is true that at a certain level, the minimum wage will start to negatively impact employment and the economy, we can be sure that we are nowhere near this level. Referring back to the idea of the productivity-pay gap, research from the Center on Economic and Policy Research states “If the minimum wage had continued to move with average productivity after 1968, it would have reached $21.72 per hour in 2012.” The stagnating wages that have precipitated this movement are a choice, not a necessity. Our country does have the money to increase wages, but the growth in our economy has been increasingly taken by the most wealthy and powerful. Therefore, our economy can healthily support a minimum wage of fifteen dollars an hour, and do so while rising millions out of poverty, boosting income for thousands of families, and giving workers dignity and a decent standard of living. It is time for the federal government to guarantee a living wage to all workers. It is time for a $15 minimum wage.
Photo credit The All-Nite Images, Creative Commons