Should The Minimum Wage Be Raised? Experts Pick Sides
The idea of increasing the federal minimum wage above the current $7.25 per hour has gained momentum in recent years, as 29 states and a number of major cities have experimented with significantly higher earnings floors while debate over income inequality has taken center stage in the national political discourse. But can the country afford a higher minimum wage, and how many people would this quick fix really help, anyway?
Well, the 2.6 million people whose wages were equal to or less than the federal minimum in 2015 represented only 3.3% of all workers paid by the hour, according to the Bureau of Labor Statistics. And that figure represents a decline from 3.9% in 2014 and 13.4% in 1979, the year such data was first recorded.
Raising the minimum wage might therefore seem to be more trouble than it’s worth, considering that every dollar increase stands to cost Uncle Sam and his loyal taxpayers (us) as much as $5.4 billion per year, assuming all the folks who make the current federal minimum or less work full time. Then again, each extra dollar increases household spending by $700 per quarter, according to the Federal Reserve Bank of Chicago, thus providing a boost to the economy as a whole. We’re also spending $153 billion each year on public assistance programs to support poverty-level workers, according to a 2015 study from the University of California Berkeley Labor Center, and that bill figures to decrease significantly with higher wages.
In other words, there is no straightforward answer in this particular debate. So with that in mind, we posed the question – should the minimum wage be raised? – to a panel of leading experts in the fields of public policy and socioeconomics. You can check out their bios and responses – including nine “Yes” votes and three “Nos” – below. And make sure to share your thoughts in the comments section at the end of the page.
Why The Minimum Wage SHOULD Be Raised
- "Yes, the minimum wage should rise. ... A higher minimum wage will help the lowest-wage earners and reduce overall labor market inequality a bit. ... Having said that, I strongly oppose recent decisions in major cities like Los Angeles, New York and Washington, D.C., to raise the minimum wage to $15."
- Harry J. Holzer // John LaFarge Jr. SJ Professor of Public Policy, Georgetown University
- “As a sociologist, I am concerned with who these workers are and the impact of low wages on families, communities and society. Over 62 percent of minimum wage workers are female and 64 percent work part-time. That means we have a labor force that is highly feminized, under-worked and under-paid – all of which contributes to the feminization of poverty: the disproportionate rate at which women and children experience poverty relative to their male counterparts. Raising the minimum wage more towards a living wage is needed, and long overdue: 7 years overdue, to be exact.”
- Meredith A. Katz, Ph.D. // Teaching Faculty, Department of Sociology, Virginia Commonwealth University
A higher minimum wage will help the lowest-wage earners and reduce overall labor market inequality a bit. That would translate into higher incomes for workers in the lowest-wage retail and hospitality jobs, and for others in the service sector – including those who care for our children, mow our lawns and launder our clothes. A higher minimum wage would modestly raise the incomes of poor households in the U.S., though families in the lower-to-middle range of earnings will mostly benefit too.
Of course, economists worry that employers will reduce their hiring, and contribute to lower employment, if the minimum wage rises. Indeed, this concern has some merit, especially for very young or less-educated workers. But the research evidence shows that employment losses are very modest if the minimum wage increases are moderate in size. The Congressional Budget Office reviewed this evidence and issued a major report in 2014; they predicted that increasing the federal minimum wage to $10 would raise wages for 16-24 M people but reduce employment by just 500,000 jobs over 3 years.
Having said that, I strongly oppose recent decisions in major cities like Los Angeles, New York and Washington, D.C., to raise the minimum wage to $15. Such increases cannot be considered moderate in magnitude; instead, they will make some unskilled or young workers simply too expensive to hire. In the long run, very high minimum wage levels might contribute to faster automation of jobs in the fast food and other service sectors, as employers would now have a stronger incentive to use robots instead of people, despite the up-front costs of transitioning from humans to machines.
As with many things in life, moderation is good in this realm.
There are currently seven states that do not have a minimum wage or have one that is lower than the federal hourly rate of $7.25. These include six southern states (Alabama, Georgia, Louisiana, Mississippi, South Carolina, and Tennessee) along with Wyoming. The six southern states rank high on unemployment and poverty. According to analysis of data from the 2014 American Community Survey, Mississippi has the highest level of unemployment at nearly 10 percent and the highest poverty rate at 22 percent. Even Mississippians who are working do not fare well with a poverty rate of close to 10 percent (ranked third) and full-time employees having a poverty rate of 4.5 percent (ranked second). These are the working-poor—people who are working but not earning enough to avoid poverty. Undoubtedly, the enactment of a minimum wage in Mississippi and the other six states lacking one would reduce the number of working-poor and improve the lives of people on the margins of society.
Of course, it is difficult to determine how the establishment of a minimum wage in these states would impact unemployment and poverty. Still, we can obtain a glimpse based on states that have consistently raised their minimum wage over the recent past. Eleven states have raised their minimum wage at least three times between 2009 and 2013. The average unemployment rate among these 11 states fell by approximately 4 percentage points and the overall poverty rate declined by 0.1 percent. In addition, the raise in the minimum wage did not hurt the most vulnerable workers. Teenagers saw their unemployment drop by an average of 8.2 percentage points compared to a dip of 3.5 percent for persons 25 and older; people without a high school diploma experienced an average decline of 6.7 percentage points in their unemployment rate compared to a descent of 1.7 percent for persons with at least a bachelor’s degree.
The federal minimum wage was last raised in 2009. Since then inflation has increased 12 percent. It is time that the minimum hourly rate be elevated to provide much needed economic relief for people who cannot stretch their scarce dollars enough to cover their basic necessities. Daniel Gitterman, a public policy analyst, points out that President Obama will be the first Democrat since the New Deal era that has failed to raise the minimum wage.
The Great Recession beginning in 2008 took a major toll on many people. No other group has suffered more than the poor, who have experienced a significant drop in real earnings. Workers with limited skills desperately need assistance in the form of a rise in the minimum wage to meet their basic needs that many of us commonly take for granted.
One of the points that is often obscured by simple economic models is that there are multiple different, and viable, ways to organize production. Different firms can, say, manufacture cars with different types of workers and different technologies. The same goes for underwriting life insurance policies or stocking store shelves. Costco organizes its business processes in one way, pays its workers a starting wage of $13-14/hour, and has relatively low turnover with opportunities for pay growth. Walmart organizes its operations in a different manner, pays its workers a starting wage of $9-10/hour, and has higher turnover. Neither firm is going to put the other out of business any time soon – both are viable. However, public policies – like a higher minimum wage – can push businesses toward "high-road" practices that involve higher skill demands, greater levels of training, higher productivity and higher wages for workers. Unless we want the welfare state to bear the entire burden of providing a decent standard of living for lower income American workers, these are the types of policies we need to explore.
Of course, some of the proposed minimum wage changes arguably go beyond "modest" increases. Indeed, one prominent economist who has conducted extensive minimum-wage research has argued that existing evidence supports an increase up to $12 per hour, but no more. Others have argued that we should focus all of our assistance to workers through less distortionary policies such as the Earned Income Tax Credit (EITC). If small job losses were our only consideration, I would say that a $12 target – or perhaps even an exclusive EITC approach – would be reasonable. However, the EITC does not change employer behavior, and more modest wage floors do not necessarily shift operational strategies. Given the importance of pushing American firms toward high-skill, high-training approaches to operations, there is a strong argument for more aggressive – albeit phased – minimum wage increases.
Currently, a full-time minimum wage worker makes approximately $14,500 per year, which falls below the poverty line for a family of two or more. The federal minimum wage has not increased since 2009, while the cost of living has increased 12 percent, according to the Department of Labor (DOL). Current political debates center on whether the federal minimum wage should be raised, and if so, by how much. Predictions by the DOL suggest if the federal minimum wage was increased to $12/hour by 2020, 35 million workers would benefit, lifting 2 million people out of poverty.
As a sociologist, I am concerned with who these workers are and the impact of low wages on families, communities and society. Over 62 percent of minimum wage workers are female and 64 percent work part-time. That means we have a labor force that is highly feminized, under-worked and under-paid – all of which contributes to the feminization of poverty: the disproportionate rate at which women and children experience poverty relative to their male counterparts. Raising the minimum wage more towards a living wage is needed, and long overdue: 7 years overdue, to be exact.
This used to be the way that economists understood the minimum wage. According to theory, it was obvious that making employers pay their workers more would cause them to hire fewer people or cut hours. To their credit, some economists eventually decided to test if this sensible idea actually worked in practice. They conducted more rigorous studies to get at the real impact of minimum-wage hikes, devising sophisticated ways to do apples-to-apples comparisons of localities that increased their minimum wages and very similar communities that did not.
Two years ago, 600 economists — including seven Nobel Prize winners — wrote a letter to President Obama and congressional leaders summarizing what that research had found. According to “the weight of evidence,” they wrote, “increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.” The economists recommended the federal minimum wage be raised to $10.10 — which, adjusted for inflation, would put it back to its level in the 1960s.
As the research has shifted, so has the politics. This weekend, advocates of a higher minimum wage will descend on my city of Richmond for the movement’s first-ever national convention. They are asking for a $15 federal minimum wage — an idea that has already won over cities like Seattle and states like New York, where lawmakers have passed legislation to phase in minimums of that magnitude. In the past few years, the Fight for $15 movement has raised awareness about the struggles of fast-food workers and other people scraping by on low wages. But they have also faced a backlash from the business community, which continues to attack increases in minimum wages based upon thinly substantiated theories of their ill effects.
To be fair, the critics do have a point that there is not any good research yet on the impact of raising the minimum wage as high as the Fight for $15 advocates want it to be. While the United States has one of the lowest minimum wages (relative to the wage of a typical worker) in the wealthy world, none of our peer countries have one so high. Furthermore, stark differences in costs of living across the country mean that the actual impact of any federal increase will also differ greatly.
Nevertheless, the best evidence we have so far suggests that smaller wage hikes won’t hurt the economy. In fact, as that 2014 open letter from economists noted, the bulk of the research suggests that such increases “could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.” In other words, putting more money into poor people’s pockets means they can actually afford to buy what other people sell. And though the research is ongoing, prosperous cities like Seattle seem to be doing fine so far on the path to that even steeper target of $15. A recent University of Washington analysis of Seattle’s minimum-wage increase to $11 — the first stage on its way up — found little effect on employment, hours worked, job openings, or business closures.
Economics aside, raising the minimum wage is a matter of moral principle. People who work full-time should be able to get by. According to research by Janelle Jones and John Schmitt, 88 percent of minimum-wage earners were 20 or older in 2013, compared to 73 percent three decades earlier. A quarter had kids. It’s not right that so many people in this country are supporting themselves — and in many cases, their families as well — on poverty wages. And Americans seem to agree: in a 2014 Pew Research Center/USA Today poll, three out of four of those surveyed — including half of self-identified Republicans —said they supported a $10.10 minimum wage.
Clearly, raising the minimum wage is no panacea. It needs to be part of a broader set of policies — from tax credits to training programs — that help the many workers being left behind in today’s economy. But a higher minimum wage is widely supported by the public. It is supported by the research. And it is supported by the values of hard work that Americans hold dear. In theory, this is what it takes to get legislation passed in a deliberative democracy. Our leaders just need to put it into practice.
The case against the minimum wage usually rests on the claim that it will reduce employment. Economists have had a lively debate on the effect of minimum wages on employment and my reading of the evidence that our best estimate of the effect is approximately zero (see Card and Krueger, Myth and Measurement, and the review symposium on this book in the Industrial and Labor Relations Review, 1995). Card and Krueger (Am. Econ. Rev. 1995) make a strong case for publication bias in minimum wage studies, so I am skeptical of studies showing large negative effects on employment.
On the other hand, the minimum wage has benefits that are often ignored. Decent wages encourage prime-age men to be engaged in the labor market rather than dropping out. Juhn (Q. Jnl. of Econ., 1992) demonstrates that, among low-wage workers, declining wages lead to declines in labor force participation. Higher wages would make employment a more attractive option.
Discussion of the minimum wages is usually focused on short-run costs and benefits, without any attention to the long-run effects. Historical evidence suggests that high-wage societies have more technological progress than low-wage societies. Allen (The British Industrial Revolution in Global Perspective, 2009) argues that the Industrial Revolution occurred in England, rather than elsewhere, because England was a high-wage society. The high cost of labor encouraged the innovation of labor-saving technologies, and everyone benefited in the long run. Similarly, the passage of the national minimum wage in the 1930s benefited the Southern economy. Wright (Old South, New South, 1986) argues that a high minimum wage encouraged the US south to integrate their economy with the rest of the country, transforming the southern economy from backwater to a prosperous region.
Increases in the minimum wage, of course, cannot be infinite. At some point further increases would be a bad idea, but I think there is a case for an increase from our current position. The current minimum wage is low in real value compared to past minimum wages. In 2015 dollars, the real value of the minimum wages was $10.90 in 1968, and was above $9 for the whole decade of the 60s, and much of the 70s. Because the minimum wage is not automatically corrected for inflation, inaction leads to a steady decline in the real value of the minimum wage. Congress should take action to correct that decline.
I conclude that an increase in the minimum wage is likely to have more benefits than costs, and thus is a good policy.
The minimum wage is not a solution to all our economic problems. There are still workers without enough hours of work, or without any job. There must be adequate enforcement because employers do not always comply with laws. And the minimum wage is still far from a living wage in most places. Still, poll after poll shows that voters – Democrats, Independents and Republicans – favor an increase.
Another poll found that 61 percent of small business owners support raising the wage. When workers have more money in their paycheck, they have more money to spend on goods and services. Furthermore, many small businesses already pay higher than the minimum wage: they do not like high turnover and prefer to keep employees around for the long-term, and therefore tend to raise their wages. Those small businesses would rather not have to compete with the large companies that pay the very minimum.
Global inequality is at record highs. Increasingly, policymakers and scholars from across the spectrum have come to agree: high inequality is bad for economic growth, harmful for the planet, and unsustainable. One of the major causes of inequality is stagnant wages at the bottom of the labor market. The minimum wage is one tool for addressing this serious imbalance.
Modest increases in the minimum wage will have little or no adverse effect on employment of low-wage workers. But what counts as modest? You don’t need a Ph.D. to understand that a minimum wage of $100 per hour, if it could be enforced, would create economic catastrophe, destroying tens of millions of jobs. So how high can the minimum wage go, before the cost of job destruction becomes intolerable?
When President Obama proposed raising the federal minimum to $10.10, an increase of 40%, the Congressional Budget Office (CBO) estimated that 97% of affected workers would get a raise and 3% would get a pink slip. (For wonks: what wage elasticity of labor demand did CBO use? Yep: -0.07.) An honest reckoning asks: does giving a nice raise to 16.5 million low-wage workers justify sacking 500,000 of the most vulnerable workers, as well as reducing profits and raising consumer prices in the low-wage sector? Again, maybe.
What about raising the minimum to $15 per hour? A $15 minimum was, until recently, an aspirational figure chosen because it was a nice, round number. No longer. California is rising to $15 by 2022. New York has mandated $15 in New York City by 2018 and in its suburban counties by 2021.
American minimum wages (adjusted for inflation) have never been as high as $15 per hour. A reasonable forecast puts the $15 minimum at 70% of the California median wage in 2022, a level as yet unsurpassed in the United States or, indeed, in any peer country.
Activists discount fears that $15 per hour will cost workers their jobs. I am less sanguine. High-wage precincts like San Jose and Manhattan can probably absorb the shock without too much damage. But low-wage areas, such as California’s El Centro, where median wages are now $14, should brace for an employment earthquake of serious magnitude. And note well, this is not a small-scale experiment. California and New York together comprise the world’s fourth largest economy.
A final observation. Today’s activists and economists disagree over how many pink slips a $15 minimum wage will create, but all agree that job loss is a grave social cost. It was not always so.
Labor activists took a very different view a century ago, when fifteen states established America's first minimum wage laws during the 1910s. Progressive economists and their reform allies argued that a minimum wage would deliver a raise to deserving white Anglo-Saxon men, and a pink slip to their undeserving competitors – immigrants deemed racially inferior, the mentally and physically disabled, and women. The original progressives hailed minimum-wage-caused job losses among these groups as a positive benefit to the U.S. economy and to Anglo-Saxon racial integrity.
Today’s progressives (rightly) condemn the racism, sexism and nativism of their namesakes. But they also reject their namesakes’ claim that a minimum wage will cost some low-wage workers their jobs. Ironically, the workers who are at greatest risk of harm from today’s $15 minimum wage are people of color, immigrants, the disabled and women.
Thomas C. Leonard is the author of Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era (Princeton University Press).
Who will benefit from a minimum wage increase? You might be surprised. Raising the federal minimum wage to $12 by 2020 would give 35 million workers a raise. Of these workers, nearly 90% are age 20 or over, and the average age of those who would benefit is 36. More than half (56%) are women, and the majority (57%) work full time. If the minimum wage was increased, more than one in five children (23%) would see at least one parent get a raise. The workers who would benefit are, on average, the primary breadwinners for their family, earning more than half (54%) of their family’s total income.
Half of all workers who would see a raise have total family incomes of less than $40,000. But importantly, another large chunk of those who would see a raise (37%) have total family incomes of between $40,000 and $100,000. In other words, a meaningful share of those who would see a raise live in middle-class families – and that’s good. The minimum wage exists to prevent the exploitation of workers, regardless of their family income. And importantly, the erosion of labor standards – like the erosion in the real value of the minimum wage over the last four and a half decades – hurts the economic outcomes of both low- and middle-income families. When these standards are strengthened, both low- and middle-income families see gains.
But won’t increasing the minimum wage cause significant job loss? The evidence says no. The employment impact of minimum wage increases is one of the most studied topics in labor economics, and what that literature shows is that past minimum wage increases have raised wages for low-wage workers, but have caused little or no significant job loss. One of the reasons minimum wage increases haven’t caused meaningful employment losses is that minimum wage increases lead to reduced job turnover. Turnover is very expensive for employers, so when it goes down, businesses recoup costs. A useful way to think about the employment effects of minimum wage increases is that they have not affected employment stocks but they have affected employment flows, i.e., they haven’t caused a decline in the overall number of low-wage jobs, but they have caused a decline in costly turnover.
Finally, increasing the minimum wage is good for the economy more broadly. When you increase the minimum wage – and eliminate the tipped minimum wage – you are shifting money into the hands of people who are very likely to spend it, and that gives local economies a boost. Raising the minimum wage goes hand in hand with broadly shared prosperity, increasing wages for low-wage workers without the harmful effects that critics often claim. It’s long past time to raise the minimum wage.
Why The Minimum Wage Should NOT Be Raised
- “As a policy to mitigate income inequality, increasing the minimum wage is not terribly effective. The reason, of course, is that an increase in the minimum wage does not necessarily raise the income levels of minimum- wage earners. While an increase in the minimum wage raises the wage level for this set of earners, it also reduces hours employed. Faced with a higher minimum wage, some firms substitute toward capital or toward higher skilled labor.”
- Bhavneet Walia // Associate Professor, Falk College of Sport and Human Dynamics, Syracuse University
- "The very people whom we want to see get a firm foothold in employment — teenagers and young adults — are affected disproportionately by the minimum wage, as it does reduce their employment. It’s not a big effect in the labor market as a whole, but it’s there. And the larger the minimum wage increase, the more it will have an effect. Look at the high youth (and overall) unemployment rates in many other countries with higher minimum wages and additional labor market restrictions relative to the US system. As our ambling economic recovery continues, we don’t need to make it harder for new workers to get that first foothold up."
- Joyce Jacobsen // Provost and Vice President for Academic Affairs, Andrews Professor of Economics, Wesleyan University
Wage subsidies to employers of low-skill workers, whereby an employer is compensated for each hour of low-skill employment hired, constitute a much more effective policy toward increasing the income of our working poor. Indeed, wage subsidies raise both wage level and hours employed for low-income workers. Therefore, such a policy unambiguously raises the income level of the working poor. Moreover, subsidies are more incentive compatible than are minimum wage laws. Whereas minimum wage laws help to create a black market for low-skill employment, employment subsidies incentivize firms to accurately report their employment activities. In this sense, employment subsidy policies do not require the enforcement funding that minimum wage laws require.
While employment subsidies necessitate public payments to firms, they do not impose a “deadweight loss” of job market value. That is to say, subsidies do not prevent mutually beneficial employment decisions from being made (as do minimum wage laws). Rather, they allow the market to reach a new equilibrium that is more favorable to our working poor. Moreover, some of the public funding for employment subsidies may be circumvented from dollars that would have gone to support minimum wage enforcement.
Similarly, job training program subsidies targeted toward our working poor allow individuals to acquire additional skills toward meaningful wage growth. Such subsidies can help our working poor whether they are allocated to the employee or to the employer. Unlike an increase in the minimum wage, policies that improve demand for low-wage workers can unambiguously improve the income prospects of said individuals.
To the extent that labor markets do not operate in introductory textbook fashion, a number of other considerations arise. If minimum wage payments involve redistribution to persons with a higher marginal propensity to consume, will they stimulate macroeconomic growth? Do higher minimum wages raise the cost of goods, including in particular the cost of goods that poorer people consume? If labor markets are not competitive, won’t a minimum wage raise rather than lower employment? Aren’t there multiple other channels for labor cost adjustment, such as reduced turnover costs, efficiency improvements, and reduced fringe benefits? But the basic question of the size of disemployment effects remains.
I have been studying the effects of the minimum wage since 1981, when my boss had me read the Carter-era Minimum Wage Study Commission reports and a similar set of American Enterprise Institute studies. One fact jumped out from those papers that still holds today: The very people whom we want to see get a firm foothold in employment – teenagers and young adults – are affected disproportionately by the minimum wage, as it does reduce their employment. It’s not a big effect in the labor market as a whole, but it’s there. And the larger the minimum wage increase, the more it will have an effect. Look at the high youth (and overall) unemployment rates in many other countries with higher minimum wages and additional labor market restrictions relative to the U.S. system. As our ambling economic recovery continues, we don’t need to make it harder for new workers to get that first foothold up.
Some people will say that this isn’t a big deal, that young people should be studying or doing other life-enriching activities instead of spending their time working minimum wage jobs. But work is experiential learning and life-enriching, too, and young people do a lot less of it than they used to. We’ve made up for the lack of real jobs somewhat by adding more constructed jobs—volunteer opportunities, government-sponsored jobs, unpaid internships—but there’s nothing like getting a real job on your own where you are paid for an hour of honest labor.
Raising the minimum wage also isn’t a good policy for raising overall earnings. Very few workers actually work at the minimum wage level – in 2015, only about 3.3 percent of hourly paid workers earned at or below the prevailing federal minimum wage level, according to the U.S. Bureau of Labor Statistics. This percentage has been dropping over time (it was 13.4 percent in 1979), and the absolute number has dropped substantially during the recovery (from 4.4 million in 2010 to 2.6 million in 2015). Our goal should indeed be to have almost no one earning the minimum wage—but having new labor market entrants earn this level, as opposed to people working their whole life at this level, doesn’t sound so bad. Indeed, half the workers at these levels are under the age of 25, and while 11 percent of teenagers on hourly pay receive the minimum wage or less, only 2 percent of workers age 25 and older is at this level.
So instead, let’s make the minimum wage irrelevant by raising worker productivity so that no one, save the newest workers, earns it. That’s the sustainable road to higher earnings for more workers.
The July 2016 unemployment statistics show an overall rate of 4.9%, but for the low-skilled 16-19 year olds, a rate of 15.6%! It is these younger people who are most negatively impacted by the minimum wage law. Raising the minimum wage rate would only increase the rate of unemployment for these unskilled job seekers beyond this already depression level rate. We’ve already seen fast food establishments develop robots to replace workers just from the threat of a future higher minimum wage rate.
Just as a worker will only offer his labor time for a wage he finds beneficial, so an employer will only be willing to pay workers a wage that permits him to earn a profit. The higher the wage, the fewer workers the employer will employ. This is what economists mean when they invoke the law of supply and demand.
If young people never get to start their career they will not be able to develop the skills they need to earn a higher wage as they progress in their work life. The analogy often used is that the minimum wage is like knocking the lower rungs off a ladder. It’s not a problem for tall people (skilled workers), but is a burden for short people (low-skilled workers) who have no capacity to step up to the remaining higher rungs.
It is truly hollow compassion to support such a policy as the minimum wage law.
Image: ChrisGorgio / iStock.
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