This column is about the federal minimum wage which is the lowest wage per hour that a worker may be paid. Raising it is complicated because there will be losers as well as winners.
Legislation proposed by Senator Bernie Sanders , the Raise the Wage Act , has put the issue on the public agenda again. It would raise the current federal MW of $7.25 , in annual increments, to $15 per hour by June 2025. The MW would then be increased annually . According to the Bureau of Labor Statistics, fewer than one million workers are paid $7.25 per hour. Many millions more make less than $15 per hour , although the exact number depends on whom you ask.
The Congressional Budget Office has analyzed the Raise the Wage Act and reported that the impact would be mixed. Based on $15 per hour, the RWA would increase wages for at least 17 million people by 2025, and lift some 900,000 out of poverty However, it would also put 1.4 million Americans out of work.
There are a number of reasons for job losses. For example, people may be replaced by automation, such as self service check out and robots. Also increased labor costs may lead to increased prices leading consumers in the aggregate to buy less of that product.
Small businesses are especially vulnerable to wage increases. In large measure this is because they are less able to offset increased labor costs by raising prices without losing customers. Small businesses employ about half of the country’s private workforce.
Many proponents of the RWA disagree with the conclusions of the CBO. They cite economists who analyzed results from different studies of what happened to jobs in cities and states that raised local wage minimums. These economists concluded that most studies showed that higher minimum wages had a “relatively modest” effect on low-wage employment.
Some RWA advocates believe that increasing the MW would increase worker productivity and reduce employee turnover. That would offset the increase in labor costs to employers. They also believe that with increased income, those a the lower end of the income scale with spend more, increasing demand for products which will in turn actually increase employment.
On the other hand, the predictions cited above are based on assumptions which may not in fact come to fruition. Also, there is concern that the composition of the work force may change. People whose presence on the payroll at $7.25 makes business sense may not be valuable enough to retain at $15. They may be replaced by new entrants into the labor market whose skill set make it worthwhile from a business perspective to hire them. Another consideration is that a higher MW for the lowest paid employees may induce employers to reduce the number of hours worked by higher paid employees to lower labor costs overall .
Advocates of the RWA point out that the current federal minimum wage of $7.25 per hour has not been raised in over 10 years. The MW has not kept up with inflation or improvements in productivity and economic growth
However, if the CBO analysis is correct, 1.4 million jobs will disappear. People who are out of work have a wage of zero, making them dependent on unemployment insurance and/or welfare. Many small businesses will fail. The increased income of some will result in the unemployment or lost business enterprise of others.
It is worth noting that 29 states, including Massachusetts, and D.C. already have minimum wages above the federal minimum wage. Many large employers report paying their hourly employees at least $15 an hour. This list includes Target, Facebook , Best Buy, Amazon, and Costco.
Another uncertainty is that we do not know how strong the post- covid economy will be or how consumption patterns and business practices may change. We also don’t know how many jobs President Biden’s Build Back Better plan will create if passed into law nor what kind of jobs they will be. It is likely that the physical infrastructure aspect will be passed and create jobs. However, those who get hired for new infrastructure projects may not be the people who are hired for typical minimum wage jobs. If “ social infrastructure “ is also funded, people in low wage jobs like nursing home aides are likely to benefit.
I support raising the minimum wage to $15 , but am troubled by nagging doubts. There are numerous uncertainties in terms of what the total impact of legislation like the RWA would be. The only certainty is that there will be a large number of winner and losers. The trade-offs present a moral question as well as an economic one.