What happens if we increase the federal minimum wage to $15? The Wall Street Journal says we don't know for sure:
Economists are divided on the effects of the $15 minimum wage. Some have looked at the patchwork of state and local increases and found little job loss relative to nearby areas with lower minimums. But others say jobs losses tied to a $15 minimum wage could be more severe, especially in states with a relatively low cost of living.
The impact would be felt in more rural states, such as Mississippi, the opponents say. Half of all workers there earned $15 an hour or less in 2019, according to the Labor Department. That includes dishwashers, cashiers, firefighters and construction laborers. Nearly half of workers in Arkansas, West Virginia and Louisiana made less than $15 an hour.
I'm not sure there's really much of a question about this. What would happen is that wages would go up for nearly everyone, but there would also be employment losses. However, we don't know for sure how big the employment losses would be since we've never enacted a national minimum wage hike this big.
Right now median annual earnings in the United States come to $36,000 according to the Census Bureau. A minimum wage of $15 is equivalent to annual earnings of about $31,000. That's a very high minimum wage. We really have no idea what effect that would have outside of high-wage cities like New York and Seattle.
Right now, the plan on the table calls for the minimum wage to rise to $12.50 by 2023 and $15 by 2025. My preference would be to stop at $12.50 and then link further increases to inflation. We should see what effect this has before jumping off into the unknown. As always, states and cities with generally higher wages could enact higher minimums if they choose to.
I'm not so sure. A minimum wage that pushed up the wage level for half or more workers in an area would probably just translate into price increases for most businesses located there - the exception would be manufacturers who can move, but in this case there's nowhere else they could move in the US.
Yeah, let's just make stuff up without bothering to do any research. Who needs science?
I think it would be very difficult and perhaps impossible to actually research this. The only way would be to construct a model based on either what people say they will do in the minimum wage is raised or the effect on unemployment of an increase of the federal minimum wage significantly above the level of the state or locality's minimum wage. One is unreliable and, as far as I'm aware, the other has never happened.
Consequently, it seems to me that rather than rely upon numbers which are unreliably and infinitely malleable, the better idea would be to research what has happened after past increases in the minimum wage and try to tentatively extrapolate to the present unique situation. Based on past reactions to increases in the minimum wage, I think that Brett would be correct in his assessment.
+1
I like the idea of allowing unionized workers to be paid less than the minimum wage for nonunion workers, which is being done in some places. We need more businesses to welcome labor organization.
Not a hostile or snarking question: Wouldn't that defeat the whole purpose of having a union? I can see why the proposition would interest employers but why would workers join a union to be paid less rather than more?
I guess the assumption is that the union would negotiate other benefits such that the total compensation ends up being higher... but I'm with you: the primary purpose of a union is to achieve a more equitable distribution of profits.
Okay, that makes sense. I do suspect that almost by definition the union would be committed to demanding good wages for its members so the benefits of your proposal would be limited. Essentially, it might get the union in the door but, over time, the union will want more for its members.
And I think this would be even more true given the changing nature of the jobs that pay minimum wage: These are no longer summer jobs or part-time jobs kids do after school (or adults do immediately after getting out of prison). Increasingly these are full time jobs that people keep for years, if they can.
I think this is a temporary sacrifice that union workers would be willing to make in order to help the company survive a stretch of bad economy.
That's an interesting argument. The problem for me is that the proposal's temporary nature is fairly obvious from the start so you'd have to find an employer who would be willing to take a flyer on letting a union push its nose under the tent in order to reap the benefit of a somewhat reduced wage bill in return for accepting the risk of a significantly higher wage bill if the Democrats either retain power or return to power after at some point after 2022.
If you're a businessperson, it seems to me that you either want a union to have the benefits of stability and productivity (even at the cost of a higher wage bill) or you are implacably opposed to unions.
I don't think it would defeat the purpose of having a union. To begin with, it would get unions into more workplaces, and it should make the relationship between unions and businesses more clearly mutually beneficial. The union could use the low-end wage flexibility to negotiate contracts that allow for more entry-level positions to be created, more job security, better conditions and benefits, and better pay for long-time employees.
I understand that unions might see things that way. But if it's so obvious that once a union would be in a business it would begin to agitate in the way you describe, why wouldn't employers prefer to just hire non-union workers at a slight wage premium?
I figure they'd rather sit down and haggle with the union people they know than have to cough up big money to every single rookie they hire because the politicians in Washington say so.
Somewhere I saw it suggested that the minimum wage be set at the local level to, say, 1/2 the local median wage. Obviously, in the best of all worlds, the wage would vary by the local cost of living. Wouldn't such a scheme solve some serious problems of misalignment in local economies? But is such a scheme even remotely practical?
If you think gerrymandered voting districts are nuts, imagine the lengths corporations would go to do define "local" median wages?
I think the main problem is that the minimum wage amount could vary drastically between periods when you measure it for the sake of setting it. Whereas setting a flat minimum wage with an inflation adjustment makes it a more predictable expense for businesses - they can plan around it being a certain amount, etc.
How about instead we go ahead and make it $15, then if the apocalypse predicted by the WSJ's hack economists materializes (it won't) we can go back down to $12.50.
The great majority of real economists maintain that a $15 minimum wage would have minimal employment effects and this is backed up by voluminous analysis, research, international data, etc. On the other side there's nothing but right-wing hacks wielding simplistic EC101 supply/demand pictures.
We get one shot at this. Like with the pandemic relief bill, Democrats need to get it done now.
You sir, are intelligent and well read. +1
Agreed!
Yes. There has been a lot of research on this and most economists think there would be little impact on employment.
https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers/
Check out the graph comparing inflation adjust minimum wages over time.
12.50 as a floor would function similar to 7.25 now. Only select states ride with the federal level. (I think I read it was either 13 or 23.)
We still prolly get to 15 in quite a few spots.
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Delete test post?
I tend to agree with this. On the other hand: If it is politically impossible to get the 15% but possible to get to 12.5 I would vote for that too. And if I were in parliament I'd push for an automatic adjustment to the consumer price index (not any other inflation measure; this is the one that matters for the people concerned) as a trade in for my agreeing to 12.5.
I've always found it better to estimate annual wages, especially for non-salary employees, as 2000 x (rate) to account for things like unpaid leave and missed hours. That's about $30,000/yr for $15/hr.
In any case, the median earnings will also increase - both from inflation and from pressure from wages below it rising. This would be such a gradual phase-in
Even at just 1.8% growth per year (a number I'm pulling from the air on the assumption that median wages roughly keep pace with inflation; 1.8% might even lag that slightly): today's $36K median earnings would be $38,600 by 2025. So $15/hr by 2025 is still not all that close to median, especially when you consider what bare minimum costs of living are. Median rent for a 1BR in the 15 largest cities (where 1/3 of the total US population lives) is $1200, for example...
I don't really understand the point of quoting the Wall Street Journal on minimum wages. They are biased and are happy to publish misinformation.
> I'm not sure there's really much of a question about this. What would happen is that wages would go up for nearly everyone, but there would also be employment losses.
Wtf? I thought you were better educated than that, Kevin. What would happen is that wages would go up for nearly everyone earning less than $15/hour. And there would be essentially no employment losses. Why do people think that economics 101 supply and demand doesn't apply to a labor market that involves humans and not cans of soup?
https://cepr.net/documents/publications/min-wage-2013-02.pdf
You're welcome.
If you look at it the way Noam Chomsky does, the WSJ tells you what those who have the power are thinking and want you to believe.
Exactement ! The WSJ is worried that the wrong kind of people will get paid and once they get a taste, they'll want more. Figure about three fifths of current wage earners will be coming for their just dues. Besides, AI is coming for WSJ jobs, what do they have to lose?
You do forget that a $15 minimum wage would result in a raise for everybody who makes $15 now plus for everybody who now makes just a little more than that.
$12.50 might have been a reasonable compromise at some point in the past if we didn't have a broken politics. But broken politics is why we still have the same $7.25 minimum wage as we've had for decades. ("Broken politics" = GOP control or GOP veto power.) If $15.00 by 2025 is too high for some people, blame those who kept the wage too low for too many for too long.
If you still want a compromise, a better solution might be to make it geographic-dependent. E.g., peg the min. wage to the median wage in a state or local area. MS can have one lower than $15 while other states like CA can go higher.
Arindrajit Dube, who Paul Krugman calls "the go-to guy on minimum wages — and an exemplar of modern, data-driven economics," is featured in today's Bloomberg Businessweek and has this to say about moving the min. wage to $15/hr. over 4 years:
https://www.bloomberg.com/news/articles/2021-02-03/minimum-wage-arindrajit-dube-on-economic-impact-of-15-an-hour
To cut to the chase, Dube (doo-BAY’) thinks it’s a good idea. “My reading of the evidence is that those risks are probably not very high,” he says, alluding to the argument that high wage floors destroy jobs by causing employers to make do with fewer workers or, in extreme cases, to close their doors. “There’s also a lot of rewards—lowering poverty.”
...
One theory for why minimum wage hikes don’t cause much, if any, job loss is that employers pay low-wage workers less than they’re worth when they can, so those workers are still worth keeping on the payroll when their wages are forced higher. Still, is $15 an hour too high? It would more than double the current federal floor of $7.25 and be about two-thirds of the U.S. median wage in 2025, Dube estimates. The bite would be harder in parts of the country where median wages are lower and in low-wage sectors such as restaurants and hospitality. Says Neumark: “I can see the argument that $7.25 is too low. I don’t think it should be $15 in Alabama.”
Dube responds that “one has to be honest about not knowing what would be the impact in every place.” But he points to 2019 research by Anna Godoey and Michael Reich of the University of California at Berkeley, who found that increases in state minimums didn’t hurt employment even in low-wage counties where the new floor equaled 82% of the prevailing median wage. And even if a high minimum wage does kill some jobs—as many studies, though not Dube’s, show it would—it can still be worthwhile if it raises incomes of low-wage families overall, he says. Some experts say that as with free trade, which helps more people than it hurts, any losers could be made whole with government assistance.
Economists view changes in minimum wages as “natural experiments” that illuminate how the price of labor affects supply and demand. They’re not always as interested in the political skirmishing around minimum wage legislation. Dube calls a recent research project he did for the Treasury of the U.K.—where a higher floor is popular even among the ruling Conservatives—“one of the most fulfilling experiences for me.” In the U.K., he says, “it’s just more seen as a more technocratic question. It’s not seen as an ideological question.”
Where are you getting this $36K figure from? That's sounds crazy low. For 2019 I'm seeing $41.5K overall and $52K for full-time workers.
See pg 9:
https://www.census.gov/content/dam/Census/library/publications/2020/demo/p60-270.pdf
15 x 2000 = 30.000. As a formula to compare hourly wages with yearly salaries.
The idea is that yearly wages in salaried jobs (rather than payed by the hour) reflect additional benefits like vacations, holidays, maybe even sick leave. All of these are not covered in hourly wages.
Given that the increase is scheduled to take place over a five year period, and only reaches $12.50 in 2023, it seems that there is time to evaluate the impact of a nationwide increase.
The minimum wage should reflect how easy it is to have a decent quality of life - for everyone. I think the two points raised by Brett above make a lot of sense.
A possible example in microcosm, the experiment given to us via local, ostensibly temporary wage hikes mandated by the local government: https://www.npr.org/2021/02/02/963496920/kroger-to-close-2-long-beach-stores-following-city-mandated-pandemic-pay-increas
Kroger is huge, 2750 stores. One suspects that the closures were about intimidating other jurisdictions out of similar wage hikes, rather than economic necessity. Pour encourager les autres.
Aside from the excellent point made by Ken Schulz, this is much more comparable to the way that the original environmental regulations operated as compared to allowing state exemptions, which naturally triggered a race to the bottom. If you're an employer of people getting the minimum wage, you can't really threaten to pack up and go because, unless you're ready to leave the country, there's just no place to go. That's the advantage of a national regulatory (or in this case minimum wage) scheme—it's uniform and nobody gets an unfair advantage.
1) Workers at the low end of the wage scale have a very high propensity to spend. When their income goes up, their spending goes up. That’s increased demand. If our economy were closed, that would mean employment increases to meet the demand with increased supply. Since our economy isn’t closed, it would depend how much of the increase goes where, and how those trading partners spend their increased income. If they buy more stuff from us, virtuous cycle.
2) According to economists, goods and services are produced by globs of capital and labor. In the actual world, goods and services are produced by systems of workers and capital goods. Laying workers off inevitably reconfigures/disturbs the system; there are no guarantees that the employer will come out ahead. Replacing workers with capital equipment can actually make the system more efficient, but notice that it creates demand for capital goods. Long-term virtuous. Short-term, we should provide support to displaced workers.
3) Yet again: Paying full-time, nondependent workers less than a living wage creates externalities - someone other than the employer’s customers is paying part of that worker’s cost of living. This is an economic inefficiency.
Alan Krueger (RIP) seems to have done a lot of work in the area of minimum wage vs employment loss and his results indicate that employment loss is minimal and the increased wages are +++ at a macro level. This is counter-intuitive to me, as well, but that appears to be what the data indicate.
Ezra Klein and Paul Krugman chatted about this topic recently: https://podcasts.apple.com/us/podcast/paul-krugman-on-covid-economics-cryptocurrencies-deficit/id1548604447?i=1000506983882
A few points...
$15 isn't some crazy number. Target already has a nationwide $15/hr minimum wage, and many of their jobs are not high-skill. Their earnings continue to grow .
Right now millions of minimum wage workers are paid billions of dollars through government programs to help the working poor. The minimum wage being so low just shifts costs from the employer to the taxpayer.
We'd also convert people from recipients of government aid to income tax payers. So, we cut program costs and increase tax revenues.
My guess is that in an economy that is driven by consumer spending more than anything else, putting money in the hands of the people most likely to spend it will create a net increase in jobs.
+1 Agree on all points.
The question is this though: If $15 an hour is close to the median wage: Is $15 too much or is the median wage too low?
I would tend to believe that the second answer is correct. What we should really do is set mandate a minimum wage at a percentage of the average pay of the 100 top earning CEOs.
The median wage is definitely too low. A major reason that the Social Security ‘fix’ made during the Reagan administration did not last as long as expected is that the large majority of pay gains since then, went to people who were already above the FICA tax cutoff, while the lower and middle quintiles stagnated.
That raises another beneficial effect of higher wages: They would tend to stabilize Social Security.
A better policy would be to restrict all incomes to the median wage. Doing so might halt the production of surpluses, which only increase the incomes of the investment class and are the cause of most of the economic activity destroying the biosphere. As part of Biden's green plan, mandating both a high minimum wage and a ceiling on income to the median would lay the ground work for a political economy that only produces what is needed for all members of society to enjoy median income lifestyles.
By definition, the only way that the maximum can equal the median is if at least half of the population is at precisely that median/maximum value.
I guess I’m unclear on how “job losses” are measured. I know several people who have to work 2 or even 3 jobs to make ends meet. One person, several jobs. Does it count as a tragic job loss if a person suddenly needs only 1 (or fewer hours at the 2) to make ends meet?
And as jymmr points out in his post, taxpayers have to provide government aid for many people with full-time jobs. Heck, people living in their cars or on the streets who receive some help from taxpayers have jobs that don’t pay enough to get them off the streets. And I would rather that companies and customers pay a little more than have taxpayers continue to subsidize the companies. On top of that, from what I’ve seen (and in having talked with some of them), these workers living on the streets want and deserve the dignity of being able to pay their own way.
I have alway assumed that the researchers count a 1/2 job as 1/2.
Aren't you comparing apples & oranges? The $36,000 median includes part-time workers. The latest BLS statistics for full-time workers show a median of $984/week, which is $24.60 an hour. Assuming 4% annual growth, this would be just under $29/hour by the time the minimum wage is scheduled to hit $15. This is very close to matching the international standard of 50% of median wages. I can see the case for setting the minimum wage state-by-state, but I think on average the $15 is a good target.
Here's the link to the BLS data https://www.bls.gov/cps/cpsaat39.htm
There are three points not quite mentioned:
1. Minimum wage employees are hired because the business requires them, it's not a choice, so the minimum wage doesn't really hurt employment even though it may lead to employees leaving firms that close, their customers go somewhere else and need to be serviced
2. When the minimum wage lagged last time it resulted in lots of 'illegals' because Americans wouldn't take those jobs but desperate people in impoverished countries would. When the minimum wage increased the 'illegal' problem largely disappeared.
3. Labor can be replaced with capital, but that typically requires a higher wage for the operators. Manual street sweepers can be displaced by mechanical street sweepers but the operators of brooms are paid less that mechanical operators. The unseen result is that a higher minimum wage tends to increase the economic efficiency of the economy both by increasing capital and by more productive workers seeking the higher wage.
I’d add a couple things to your post.
1.) There are many jobs that Americans won’t do, but they are not always the lowest paying. One example that comes to mind is meat packing workers. It is common for those jobs to pay more than a lot of the other jobs in rural areas, but it is still hard to convince Americans to take those jobs. So they hire lots of illegals.
2.) Kevin and others have over the years pointed out that the biggest spikes of illegal immigration happen when there are a lot of people aged 15-25 south of the border. When the number of young people drops, the number of illegals drops. Economic conditions in America can have some effect, but it is secondary.
I'd only settle for $12.50 if somehow $15 wasn't politically feasible but somehow $12.50 was.
Set the minimum wage to two thirds of the median wage in that COUNTY three years prior, which is usually about 60% of the current median. Three year delay in order for the statistics to be compiled and disseminated. County by county to account for cost of living differences.
The trouble with expecting a whole lot of social progress from a minimum wage raise is that the hourly amount cannot be pegged above what the bottom of the barrel union contract would be – above labor's weakest bargaining result.
Taking $15 an hour as that bottom peg for argument’s sake, that would meant almost 40% of American workers are earning less than the weakest union contract would yield them.
(http://fortune.com/2015/04/13/who-makes-15-per-hour/ -- 2015)
Check these out:
https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=0.75&year1=195001&year2=202012 .75 8.31
https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.60&year1=196802&year2=202012 1.60 12.19
Never mind any bottom of the barrel pact -- 2012’s federal minimum wage is a dollar an hour short of the 1950 federal minimum (!) – and five dollars short of the 1968 (!) -- been something like tripled per capita income since 1950 – doubled since 1968.
* * * * * *
Why can't people just join a union if they want to -- why can't they just vote for certification freely in regularly scheduled elections?
https://onlabor.org/why-not-hold-union-representation-elections-on-a-regular-schedule/
https://irle.berkeley.edu/files/2019/02/The-Employment-Effects-of-a-15-Minimum-Wage-in-the-US-and-in-Mississippi.pdf