Should Minimum Wage Be $15?
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KEY SOURCES
Bureau of Labor Statistics
Economic Policy Institute
American Economic Journal
American Economic Review
Congressional Budget Office
National Bureau of Economic Research
U.S. Department of Labor
International Small Business Journal
Urban Institute
WHY THIS QUESTION MATTERS:
Debates over the federal minimum wage have existed since it was established in 1938. In July 2019, the issue was thrust back to the center of the U.S. political stage when the Raise the Wage Act was passed in Congress. The bill proposes to raise the federal minimum wage from $7.25 to $15 per hour. While the bill is not expected to pass the Senate in the near future -- this proposal is likely to be a key policy issue in the upcoming 2020 Presidential Elections.
TELL ME MORE ABOUT THE RAISE THE WAGE ACT.
If passed, the federal minimum wage would raise from $7.25 to $15 per hour between now and 2024. After 2024, the minimum wage would be indexed to median wage growth of all employees to keep up with inflation. This new wage would apply to all workers – meaning previous minimum wage exceptions for tipped workers, teen workers, and individuals with disabilities would be repealed. Read the full bill here.
The bill has a slim chance of becoming law in the near future based on political gridlock in Washington. However, the federal minimum wage debate is likely to be an important topic in the 2020 elections cycle.
LET’S PUT THIS DEBATE IN HISTORICAL CONTEXT.
President Franklin D. Roosevelt established the first federal minimum wage as part of his response to the poor working conditions post-Great Depression in 1938. The minimum wage was $0.25 per hour (roughly $4.45 in today’s dollars). Since then, the federal minimum wage has been raised twenty-two times. The most recent raise was in 2009 under President Obama, where the minimum wage raised from $6.55 to $7.25. As of 2018, there are an estimated 1.8 million Americans (2.3% of the hourly workforce) earning at or below $7.25 per hour.
In addition to the federal minimum, many states and cities have established their own minimum wage. Employees receive whichever is higher, the federal, state or local minimum wage. As of 2018, twenty-nine states set a minimum wage that is higher than $7.25 with more state level raises being implemented in 2019.
Several large corporations have also established a minimum wage that is beyond the federal requirement in recent years. Analysts suggest that these moves are a result of a combination of political pressure (see Stop Bezos Act) and a tight labor market which forces corporations to compete for labor (see unemployment rates at historic lows). Amazon, Walmart, and Costco have all set a company minimum wage that is higher than the federal minimum. Company minimums range from $12.10 at Walmart to $15 per hour at Amazon.
SO, WHAT'S THE SIGNIFICANCE OF THE $15 FIGURE?
The figure was first popularized by the "Fight for $15" Movement. Supported by SEIU, the movement began in 2012 when two hundred fast-food workers walked off the job in New York. It has since expanded to 300 cities and six continents, according to their website. Seattle, WA became the first city to officially adopt a $15 per hour minimum wage with a 2015 ordinance. Several other cities have followed. The Raise the Wage Act is the first proposal to make a $15 wage the federal minimum.
What do you think?
The Common Thread
Supporters and opponents of the bill both say they want to to promote an efficient and fair economy.
FIND YOUR Thread
Supporters say a $15 minimum wage would HELP vulnerable workers and the economy. Opponents say it would HURT vulnerable workers and small businesses.
Yes, a $15 minimum wage is a good idea.
Reason 01
THE CURRENT MINIMUM WAGE HAS NOT KEPT UP WITH INFLATION OR ADVANCES IN THE ECONOMY.
Once you account for inflation, today's minimum wage workers earn less per hour than their counterparts did 50 years ago, despite worker productivity nearly doubling and dramatic growth in the economy in that same period (BLS).
The real minimum wage (or wage adjusted for inflation) is 25% lower than it was at its peak in 1968 (BLS).
Analysts estimate that if minimum wage kept pace with productivity growth the nominal wage would be roughly $20 per hour today (EPI).
Reason 02
RAISING THE MINIMUM WAGE WOULD REDUCE INCOME INEQUALITY.
The CBO estimates that a $15 wage would give 17 million working people a raise by 2024 (CBO).
The EPI estimates that minorities would disproportionately benefit from increased wages. One-third of Hispanic workers and 40% of black workers would receive a raise. Additionally, most affected workers (55.6%) would be women (EPI).
A study in the American Economic Journal states that a failure to adequately increase the minimum wage accounts for 48% of the increase in income inequality between women at the middle and bottom of wage distribution (AEJ).
Reason 03
RAISING THE MINIMUM WAGE WILL HAVE POSITIVE SPILLOVER EFFECTS ON CONSUMER SPENDING AND WORKER MORALE.
More money in the pockets of workers leads to increased consumer spending and positive economic growth (EPI).
Additionally, if workers are satisfied with their wages they are more likely to be productive and less likely to leave their job. This reduces employee turnover expenses for businesses (Urban Institute).
No, a $15 minimum wage is not a good idea.
Reason 01
DRASTICALLY RAISING THE MINIMUM WAGE WOULD ACTUALLY HURT THE WORKERS THAT THE POLICY IS TRYING TO PROTECT.
While workers may earn more money per hour, there will be less hours to work. Increased minimum wages will also increase unemployment as businesses must offset the higher labor cost (AER).
When President Obama proposed a $10.10 minimum wage in 2014, the Congressional Budget Office estimated it would cost 500,000 jobs (CBO).
The current $15 minimum wage could wipe out up to 1.3 million jobs (CBO). Low skilled and uneducated workers would be disproportionately affected as they compete with more qualified candidates in a smaller job pool (NBER).
In Seattle, the first city to adopt a $15 minimum wage, a study found that while workers earned 3% more per hour, their overall monthly pay decreased due to a 6-7% reduction in working hours (NBER).
Reason 02
MINIMUM WAGE DECISIONS SHOULD BE LEFT TO THE STATES - IDAHO IS DIFFERENT THAN NEW YORK.
A 2x increase in the minimum could end up incurring dangerously high costs in poorer parts of the country. In San Francisco, CA a $15 wage has the real purchasing power of $11.80 while in Beckley, VA the same wage has the real purchasing power of $19.04 (USCC). In Beckley, a $15 minimum wage would risk bankrupting small businesses and hamstringing economic growth in these already vulnerable areas.
Many prosperous states have already increased their state and local minimum wages to account for higher cost of living (DOL). Therefore, a $15 minimum would have very little impact on prosperous states and disastrous impacts on less prosperous states.
Reason 03
RAISING THE WAGE WILL DISPROPORTIONATELY EFFECT SMALL BUSINESSES, WHICH EMPLOY 48% OF THE WORKFORCE.
Many large corporations have already raised their minimum wage above the federal requirements (BI). But what works for large corporations won’t work for all businesses.
Small businesses will likely need to cut back on their workforce, erode profits, or declare bankruptcy if forced to adopt significantly higher wage requirements (HF). Small businesses employ 48% of the American workforce (DOL).
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