The $15 An Hour Minimum Wage Is Catching On, But Will It Go National?

$15 Minimum Wage

On Wednesday, New York moved toward a $15 an hour minimum wage when the state’s Fast Food Wage Board, appointed by Gov. Andrew Cuomo, recommended that the minimum wage for its 200,000 fast food workers be increased to $15 an hour from the current $8.75. That increase will be seen first in New York City before expanding to the rest of the state.

But New York wasn’t alone this week. Officials in Washington, D.C. approved a voter initiative that will see a wage hike to $15 on next year’s ballot. And on Tuesday, the Los Angeles County Board of Supervisors decided to raise the minimum wage in unincorporated areas to $15 an hour.

Those raises come amid a growing movement to increase the minimum wage throughout the country. The federal mimimum wage has not seen an increase since it was raised to $7.25 six years ago, but many states and local jurisdictions have boosted theirs. Seattle helped spark the movement when it raised its own minimum wage to $15 an hour, an increase that took effect in April. It was soon followed by San Francisco and the City of Los Angeles. Chicago and Kansas City, Mo., have also boosted their minimum wages to $13 an hour. And the University of California announced a system-wide increase in the minimum wage it pays to employees and contract workers, to $15 an hour, with President Janet Napolitano saying it “is the right thing to do.”

Since Republicans control both houses of Congress, an increase at the federal level – especially as high as $15 an hour – is unlikely anytime soon. But you can be sure the debate over the minimum wage will be central to the presidential campaign and continue to stir activists and opponents at local levels. So it’s a perfect time to review the arguments for and against, and look at the politics of the minimum wage.

Raising the minimum wage is a terrible idea

The conservative argument has long been that setting a wage floor is ultimately counterproductive: businesses will be forced to cut jobs or move to areas with lower minimum wages, or none at all. This is especially true for small businesses who can’t absorb added costs, even those with a noble purpose. In the short run, increasing the minimum wage could thus increase unemployment; in the long run, it might even shutter shops that can’t keep up.

That argument has plenty of economic research backing it up, including several recent studies from the National Bureau of Economic Research. The Congressional Budget Office also issued a report last year comparing two wage increase options, to $10.10 an hour in one and $9.00 an hour in the other. In both cases, raising the minimum wage was projected to result in a net loss of some jobs (in the $10.10 option, for example, the CBO estimated that about 500,000 jobs, or about 0.3% of the labor force, would be lost). But for those who do remain employed in low-wage jobs (16.5 million will see wages boosted under the $10.10 option and 7.6 million in the $9.00 option), their income will increase and bring about some associated economic benefits that we’ll touch on in a bit.

In an assessment of the San Francisco minimum wage increase last year, the city’s Office of Economic Analysis came to much the same conclusion: buying power would increase for many low-wage employees while also reducing the city’s overall employment by about 2%. It’s too soon to assess the actual impact of San Francisco’s $15 an hour minimum wage, which will be phased in over a period of a few years, but one high-profile case was Borderlands Books, a science fiction bookstore in the city’s Mission district that announced it would have to close because of the wage increase. “Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco –Borderlands Books as it exists is not a financially viable business if subject to that minimum wage,” wrote owner Alan Beatts at the store’s blog.

Conservatives have also made the claim that many low-wage jobs are generally transitional and not intended to sustain workers for long periods of time. That argument makes sense if, in fact, most burger-flippers and janitors are high school kids working part-time.

Raising the minimum wage is an excellent idea

But they aren’t.

Those low-wage jobs can be transitional, and many young people do spend time at McDonald’s or Target making some extra cash while going to school. But many more are also working those jobs full-time and throughout their lives. Those people have bills to pay, just as higher-income workers, and often work multiple jobs just to make end’s meet.

“All of our workers, from coast to coast, need at least 15 bucks an hour,” said Sen. Bernie Sanders, an Independent from Vermont and candidate for the Democratic presidential nomination, this week. “What we are saying, loudly and clearly, is $7.25 an hour, the current federal minimum wage, is a starvation wage. It’s got to be raised to a living wage.”

Sanders was speaking in support of his bill to increase the federal minimum wage to $15 an hour by 2020. Fittingly, his call came as Capitol food-service workers went on strike to demand higher wages. The Washington Post pointed to Eric Baker, one of those workers on strike, as an example of how difficult it is to get by:

Baker, 52, has brushed shoulders with the famous and the powerful in his years as a Senate food service worker — once, for instance, he received a $20 tip from then-Sen. Barack Obama — but he is otherwise no better off [than while he was working at the Washington Hilton].

Unable to make ends meet on his $11.30 hourly wage, he now cleans offices for five hours at night after his eight-hour Capitol shift ends. It’s nearly midnight before he comes home to his D.C. apartment, hoping to catch a few hours of sleep before he reports to the Senate for his morning shift.

That brings us back to the CBO report. The minimum wage has been increased over the years, but its real value – taking inflation into account – has fluctuated quite a bit.

U.S. minimum wage value over time adjusted

And the CBO busted the myth of the minimum wage as a thing for teenagers:

Minimum-wage workers are sometimes thought of primarily as teenagers from nonpoor families who are working part time, but that is not the case now. Of the 5.5 million workers who earned within 25 cents of the minimum wage in 2013, three-quarters were at least 20 years old and two-fifths worked full time. Their median family income was about $30,000, CBO esti- mates.

What about the argument – backed by data and economic logic – that minimum wages reduce employment? That’s probably true in the short run, but long-run effects are much harder to gauge due to a number of confounding factors: are changes in employment levels due to the minimum wage increase or other economic variables at the local and national levels (a recession, for example)?

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Some businesses may also find creative ways to address the increased costs of a higher minimum wage: San Francisco’s Borderlands Books, for example, avoided closure by implementing a membership system in which customers paid $100 each to receive certain benefits while providing the store with the added funds it needed. That might not work for all small businesses, but Borderlands did attract more than 500 subscribers to raise at least $50,000.

And higher minimum wages could actually end up creating jobs due to increased demand from low-wage workers with more disposable income. The CBO, for example, says that “a few higher-wage workers would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase.” It’s an open question whether boosting low-wage employees’ earnings as high as $15 an hour would end up creating enough demand to recover their colleagues’ lost jobs.

The politics of the minimum wage

The political fight over the minimum wage is really a fight over income inequality, an issue that has dominated much of electoral politics for the past year and promises to gain even more significance between now and Election Day 2016. The concerns – that the gap between the richest Americans and everybody else – are almost as old as American politics, or at least feel that way. To some extent, income inequality has always been a dominant campaign issue.

But it became even more pronounced following the publication of Thomas Piketty’s Capital in the 21st Century last year. Piketty, a French economist, argued that inequality has reached dangerous levels and governments need to step in to stabilize the situation before it gets really out of hand. He backed up that argument with a hefty amount of data covering the past two centuries of global economic activity.

Here’s a key trend relating to wages, as explained by The New Yorker’s John Cassidy:

When income generated by capital grows rapidly, the richest families benefit disproportionately. Since 2009, corporate profits, dividend payouts, and the stock market have all risen sharply, but wages have barely budged. As a result, according to calculations by Piketty and Saez, almost all of the income growth in the economy between 2010 and 2012—ninety-five per cent of it—accrued to the one per cent.

And when it comes to the argument that top executives deserve their often hefty salaries because they have outsized influence on the company’s success, Piketty points out that those payday decisions are often made by associates on the same level: “It is only reasonable to assume that people in a position to set their own salaries have a natural incentive to treat themselves generously, or at the very least to be rather optimistic in gauging their marginal productivity.”

Piketty’s book struck a nerve with academics, journalists, and policymakers alike. It came at the perfect moment, between the populist outrage of the tea party movement and the ascendancy of a less-organized but just as vocal counterpart on the left. Democratic senators like Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont have become rock stars by advocating for stronger government measures to reverse the trend toward greater income inequality.

It might seem counterintuitive but the left and right actually have a lot of overlap here. When it comes to their populist wings, both conservatives and liberals want to check what they see as the much-too-powerful big banks, big business, etc. They scoff at the phrase “too big too fail” and think the little guy needs to be empowered for a change.

Where the two camps part is, of course, the solutions. Republicans see government as the problem, having become way too big itself and skewing the market in a way that has led to many of the inefficiencies and distortions. Democrats think unfettered business funnels profits to the top and leaves the regular workers out.

All this is to say that income inequality is no longer just a concern for liberals – it’s gone mainstream, so to speak, and has already become a key part of Republican talking points.

Bernie Sanders

The minimum wage is part of that debate, but candidates vary on how they’d tackle it. Sanders gained headlines with his speech this week, and Democratic frontrunner Hillary Clinton gave an impassioned speech last month to a convention of low-wage workers in Detroit, declaring “I want to be your champion.” She has, however, been less explicit than Sanders in demanding a $15 an hour minimum wage at the national level.

Republicans, meanwhile, are generally against the idea even if they now give lip service to the problem of income inequality. Wisconsin Gov. Scott Walker, who gained fame for his 2011 push to cripple state workers’ collective bargaining rights, called minimum wage laws “lame” when he announced his campaign for president earlier this month. And in January, three other candidates – Senators Marco Rubio of Florida, Ted Cruz of Texas, and Rand Paul of Kentucky – all argued against raising the minimum wage and instead working to create broader economic growth that will, presumably, lift wages naturally.

“My problem with raising the minimum wage is not that I want to deny someone $10.10,” Rubio said, pointing out that he is against repealing the minimum wage that currently exists. “I’m worried about the people whose wages are going to go down to zero because you’ve made them more expensive than a machine.”

Expect this debate to continue well into the 2016 campaign, and perhaps beyond. The results of real-world experiments in Seattle, San Francisco, Los Angeles, New York, and elsewhere will likely help tip the scales.

Written by Gene Giannotta


Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.