While it is unlikely that a $15 minimum wage will be passed soon, there are no substantive reasons for avoiding an increase in the minimum wage.
Some may point to a recent Congressional Budget Office report that indicates a $15 minimum wage will kill jobs as a reason against passing it, but that report is inconsistent with most other available research.
In early February 2021, the Congressional Budget Office announced that a $15 minimum wage would eliminate over a million jobs if implemented. In the report, the budget office states, “Those estimates are based on CBO’s estimates of the bill’s effects on the economic behavior of individuals and firms,” which is a fancy way for economists to say they’re making guesses based off of how they assume the economy works, rather than looking at real life examples of how the economy works. Since the budget office reports make their predictions using models and not real-life experiments, their results reinforce the assumptions made.
Since the 1980s, mainstream economics, including budget office reports, have relied upon so-called “neoliberal” assumptions in building their models. In this case, the assumption would be that a higher minimum wage inevitably leads to job losses. In the neoclassical view, a higher minimum wage may bring some people out of poverty, but it must also destroy jobs in the economy.
Such a view overly simplifies the realities of minimum wage increases. Since the 1990s, there have been several real-world studies that have looked at the minimum wage increases and their effect on employment and income.
In 1992, economists studied the effects of a minimum wage increase on employment of low-wage food service workers in Pennsylvania and New Jersey. The results of this study “challenge the prediction that a rise in the minimum reduces employment.” This finding has been echoed numerous times, more recently by researchers at the University of California at Berkeley and from multiple studies from researchers at the University of Massachusetts and University College at London.
What separates these studies from the budget office reports is their methodology. The studies that challenge the prediction look at real-life natural experiments in minimum wage increases, such as when New Jersey raises the minimum wage, but Pennsylvania doesn’t. The budget office report instead relies upon creating simplifications of the economy and models that rely on defunct neoliberal assumptions, making them less reliable.
Opponents to a minimum wage increase also argue that increasing the minimum wage will lead to soaring prices, a phenomenon known as wage-push inflation. This theory suggests that once wages go up, production prices also go up, resulting in prices going up. But real-life studies find this argument is also inconsistent with the realities of minimum wage increases.
Without the specter of massive job losses and soaring prices looming over minimum wage debates, there is no substantive policy reason to oppose an increase to $15 an hour. According to a forthcoming study from the Economic Policy Institute, a $15 minimum wage as implemented by the “Raise the Wage Act of 2021” would raise the wages of 21 percent of working Americans by an average of $3,300 a year and 59 percent of workers who live below the poverty level would see increases in their pay.
Another often unmentioned benefit is that such increases make significant progress in reducing the racial wealth gap. In a 2021 study, researchers from UC Berkeley found that changes to the minimum wage resulted in 20 percent of the decline in the “racial earnings and income gap during the civil rights era” due to raises for Black Americans. Such effects would also be replicated by an increase in the minimum wage today and the elimination of the tipped minimum wage.
Finally, increasing the minimum wage to $15 an hour would help to increase economic growth. In 2020, the United States economy shrank by 3.5 percent, the first contraction since the 2008 Great Recession. Additionally, the decade between the Great Recession and the COVID-19 pandemic saw relatively low rates of economic growth. It is essential that the U.S. ends this trend if we wish to remain competitive in the global economy. Raising the minimum wage helps achieve that goal.
Public policy is meant to address our collective issues and leave our country better off than it was before. There would be no point in creating public policy if the outcome of that policy was not the betterment of our country. A higher minimum wage is good public policy because it betters our country. A $15 minimum wage reduces poverty and the racial wealth gap. It also increases economic growth.
To reignite the economic engine of America and raise living standards for Americans, we must increase the minimum wage to $15 an hour.
Jeremy Brum can be reached at [email protected].
