Bernie Sanders, Martin O’Malley and a host of other well-intentioned liberals want to hike the federal minimum wage to $15 an hour.
This is a badly misguided idea. And Hillary Clinton has been right to avoid endorsing it, despite strong pressure from the left.
Don’t get me wrong. At just $7.25 an hour, today’s federal minimum wage is absurdly low. This Friday marks exactly six years since it was last lifted, and it looks especially paltry compared with its peak value in 1968 ($10.97, in today’s dollars). It could stand to rise more than a smidgen above what Sanders has rightly called today’s “starvation wage.”
And research has indeed shown that modest minimum-wage hikes need not kill jobs. Depending on how price-elastic — that is, price sensitive — you think employers are, they can absorb a small increase in labor costs by, for example, accepting narrower margins or passing along higher costs to customers. In some cases, higher wages might even benefit employers of low-skilled labor, by attracting more productive workers and reducing turnover.
Raising the federal minimum wage to $10.10 — a policy change that most Americans support — would likely boost the earnings of about 16.5 million workers while reducing total employment by about 500,000, according to the Congressional Budget Office. This is a trade-off that many allies of low-wage workers are willing to accept — particularly those of us who worry that anti-poverty spending programs may allow employers to further depress worker pay.
But none of this suggests that there aren’t limits. Even the most diehard of labor advocates probably wouldn’t endorse a $50-an-hour minimum, because they know such a wage floor would price pretty much all low-skilled laborers out of a job.
So if a $10.10 minimum probably would help more low-wage workers than it would hurt, and a $50 minimum would almost certainly hurt more than it would help, what about $15?
In some parts of the country, where the cost of living is relatively steep, a $15 minimum wage might put more money into the pockets of workers while eliminating relatively few jobs. Think of cities such as New York, San Francisco, Chicago, Los Angeles, Seattle and the District, all of which have either proposed or already adopted a $15 minimum.
Even in these expensive cities, though, don’t be surprised if you see fewer busboys, grocery baggers and other low-level jobs. The higher wage floor will make at least some such positions cost-prohibitive.
In other, lower-cost parts of the country, however, a $15 minimum — which, remember, is more than double the current federal level — would likely throw many, many more people out of work.
In Arkansas, the median hourly wage is $14.01. In Mississippi, it’s an astoundingly low $13.76. It’s likewise below $15 in six other states, and three U.S. territories. That means a $15 minimum wage could be binding on more than half of the jobs in these places. In economically troubled Puerto Rico, where the current federal minimum of $7.25 is arguably already too high relative to labor productivity, it could affect more than three-quarters of all jobs, depending on how many employers found a way to wrangle an exemption.
Yes, it’s distressing that wages in these states and territories are so low. But trying to change the prevailing wage — rather than just the bottom of the income distribution — by fiat is likely to cause massive job losses.
There are better ways for federal policymakers to raise the minimum wage and effectively grant the lowest-paid workers a much-needed raise.
One approach is to phase in any minimum wage increases gradually (which, to Sanders’s credit, will be a feature of the $15-minimum legislation his office told me he’ll introduce Wednesday).
Another is to adjust wages based on regional cost of living, and then index those levels to inflation going forward. This may sound impossibly cumbersome. It’s not. Multiple resources out there calculate variations in costs of living, such as MIT’s Living Wage Calculator. IKEA uses this tool to help determine how much to pay workers in different parts of the country.
The impulse to boost the wages of the neediest workers is a good one, particularly given how low-skilled workers’ bargaining power has been ground down over the decades. And by all means, we should throw our support behind workers who are organizing to try to extract fairer pay from well-heeled multinational conglomerates. But doubling the federal minimum in one fell swoop would hurt many of the workers it’s intended to protect.