Should the Minimum Wage Be Raised to $15 an Hour?
Will raising the minimum wage lift millions of Americans out of poverty or will it backfire and cause higher unemployment and inflation?
|Oct 4, 2019||2|
Those against a significant minimum wage hike argue that small businesses will close, people will lose their jobs, and the price of goods will skyrocket. Advocates for a higher minimum wage believe that lower-wage workers deserve a living wage, and shouldn’t be required to work multiple jobs to survive. They also believe consumer spending will increase (because minimum wage workers will have more money) and strengthen the economy.
What do people think about raising the minimum wage?
Politically, all Democratic candidates (that have gone on the record) agree on raising the federal minimum wage to $15 an hour, with the exception of Senator Michael Bennet (CO) who wants to raise it to $12. Republicans are generally against minimum wage hikes. President Trump said he was considering backing a $15 minimum wage in June, but he also said that “wages have gone up more than anybody in many decades right now,” so I wouldn’t hold my breath.
Economists also disagree on the subject. Until the mid-1990s, they generally agreed that raising the minimum wage would increase unemployment, but many economists now believe that some minimum wage increases may have no effect on the unemployment rate.
Americans aren’t nearly as divided as politicians and economists, probably because millions of Americans are making minimum wage while politicians and economists are personally unaffected* by the issue. 67% of the country favors raising the minimum wage to $15 an hour.
*Economists and politicians all make more than minimum wage. They are still affected by the issue though, as many economists are funded by groups such as the Employment Policies Institute, a conservative think tank funded by the restaurant, hotel, alcohol, and tobacco industries. Political lobbyists also spend a lot of money in Congress to keep the minimum wage low.
How is the U.S. doing compared to the rest of the world?
One way to measure a country’s minimum wage is to compare it to the median income. This tells us how minimum wage workers are doing compared to the middle class. A higher minimum wage to median wage ratio means less income inequality, and a lower ratio means greater income inequality.
The median wage for workers in the United States is $905 per week, and minimum wage (for a full-time worker) is $290 per week, or 32% of the median wage. Astonishingly, this is lower than any other country I could find data for - check out the list for yourself. No other country is even close to being as low as the United States. The next closest are Czech Republic, Japan, and Mexico, all at 42%.
The average across all countries in the data set (excluding the U.S.) is 53%. If the U.S. had an “average” minimum wage to median wage ratio of 53%, minimum wage would be at least $12 an hour. I say ‘at least’ because increasing the minimum wage would inevitably increase the median wage, and it’s impossible to calculate an exact figure without knowing what the median wage would rise to.
Arguments against a minimum wage increase
Those against raising the minimum wage argue that the unemployment rate will rise and many also argue that inflation will rise along with it. I’m not buying it. All other countries I could find have higher minimum wages relative to median wages, and most of them have low unemployment rates and low inflation rates.
The United States is unlike any other country though, so maybe it’s unfair to compare ourselves to everyone else. Luckily I was able to find a nice chart of the U.S. minimum wage from the Economic Policy Institute (not to be confused with the conservative Employment Policies Institute), a non-profit and non-partisan think tank. As you can see in the chart, worker’s wages kept rising with economic productivity until about 1968*. In 1968, unemployment was at 3.6% and inflation at 4.19%.
*An important note: participation of women in the workforce is about 20% higher now than it was in 1968. This means some of the increased productivity is due to the increase of women in the workforce. However, this does not mean that minimum wage should not have been able to keep up; total civilian labor force participation has remained relatively flat over time. The increase of women in the workforce has been largely negated by the decrease of male teenagers and men 55+ in the workforce.
If minimum wage had kept up with productivity it would now be $20.63. If businesses could afford to pay workers what they were worth in 1968, they can afford it in 2019. The problem is many business owners and those in power began keeping the extra profits created by more productivity for themselves. And the federal government hasn’t increased the minimum wage nearly enough to even keep up with inflation, much less increased productivity.
Another common argument against a minimum wage increase is “I can’t afford to pay my employees that much. I’ll go out of business if the minimum wage goes up.” That argument is based on a false premise; business owners who say this assume their costs will increase much more than their revenue. If the minimum wage is increased, millions of Americans will have extra discretionary income to spend at businesses everywhere, so many small businesses will end up profiting from a minimum wage increase.
The businesses that suffer the most will be the businesses that see their costs go up the most. Costs will go up the most for businesses that currently pay their employees minimum wage or a low wage. Luckily for these businesses there are many places they can cut costs without cutting staff. For example, McDonald’s, one of the worst offenders when it comes to minimum wage employment, has a CEO that made $15.9 million last year.
If the minimum wage is raised to a living wage, corporations may very well choose to cut jobs to continue growing their profits for shareholders. I’m sure many CEOs would rather fire low-level employees than take a pay cut themselves. That’s why it’s important to support businesses that treat their employees right, even if there isn’t a minimum wage increase. If businesses like Walmart and McDonald’s see their customers voting with their wallets and taking their business elsewhere, they will start to treat employees better.
So should the minimum wage be raised or not?
The minimum wage issue is complex, and the money spent by lobbyists to mislead and obfuscate politicians, economists, and the general public has made the issue seem even more complex. When looking at the numbers, it’s clear the United States has an extremely low minimum wage compared to other countries (the lowest I could find, actually) and that the minimum wage has not risen at the same level as economic productivity. Of course we aren’t living in a fair world, but if we were, and minimum wage workers received the same benefit from the rise in productivity as the upper class, the minimum wage would now be over $20 an hour.
It’s clear the minimum wage should be raised, and $15 an hour is a good start. For the U.S. to be considered “average,” the minimum wage would need to be greater than $12 an hour; if the minimum wage had kept up with productivity, it would be around $20 an hour. $15 an hour may sound extreme, but that’s only because the federal minimum wage has been too low for a very long time.
The reality is $15 an hour still isn’t enough to afford housing in many states. Even if the minimum wage is increased to that level, many working adults will still have to rely on having a working partner or roommates to afford housing. $15 an hour won’t make anyone rich, but it will help ends meet. Minimum wage workers would be able to spend a little less time at work and a little more time with their friends and families, and some families might be able to move out of an apartment into a house. Ensuring all Americans make a living wage isn’t about taking money away from the rich, it’s about making sure everyone has access to basic necessities like shelter, food, and healthcare.