America is missing a golden opportunity to boost the job market
Getty Images; Alyssa Powell/BI
Picture this: You're walking down the grocery aisle in 2009. A carton of eggs costs about $1.60, and a pound of ground beef is $2.13. The typical home for sale across the street is about $214,000. Flash forward to today, and the prices for those same goods have shot up to $2.71, $5.47, and $412,000. Prices are up about 45% across the board. But the one thing that has stayed constant? The federal minimum wage, which has been stuck at $7.25 an hour for 15 years.
You can see the issue: People making the mandated minimum have far less purchasing power than they once did. The silver lining is that thanks to the reality of the labor market, very few workers actually make $7.25. According to the Bureau of Labor Statistics, of the nearly 80 million workers in the US who are paid hourly rates, only 1.3%, or about 1 million, are paid at or below that federal floor.
Given the situation, here's an idea: Why not raise the federal minimum wage right now? It wouldn't be a big deal for businesses, which by and large aren't paying $7.25 anyway, and it would lock in gains that low-wage workers have made in recent years in the event of a downturn. Thanks to the spillover effect an increase may have, it could also help workers beyond those making the lowest wages and bump up their pay, too.
Research suggests a higher minimum wage can increase worker productivity and lower turnover costs for businesses because workers stick with their employers longer. It could reduce government expenditures on public assistance programs and put more money into consumers' pockets for them to increase aggregate household spending and, in turn, boost GDP.
Though it seems like a win-win-win for the economy, workers, and even businesses (though many won't say that), Congress has resisted raising the federal minimum wage for the past decade and a half. Getting anything done legislatively is always a challenge, especially in an election year, but polls indicate a higher minimum wage is broadly popular. Many states, red and blue, have implemented higher wages. Some have even done so by voter referendum, including Nebraska and Florida — not exactly Democratic strongholds. Even if it's not on the 2024 agenda, it could be on the radar in Washington, DC, for 2025.
"You would think that this would be an uncontroversial policy — just pass a minimum wage, give these workers a higher wage," said Yannet Lathrop, a senior researcher and policy analyst at the National Employment Law Program. "But nothing is easy, obviously, in Washington."
The US is in uncharted territory when it comes to federal minimum-wage hikes. This is the longest period that the national floor hasn't increased since it was implemented in 1938.
The $7.25 minimum is also out of step with the many states and municipalities that have wage standards separate from — and often above — the federal number. Arizona's minimum, for example, is $14.35, California's $16, Florida's $12, and West Virginia's $8.75. Seattle's minimum wage for large businesses is $19.97, and for smaller ones it's $17.25. Still, several states have a minimum wage that matches the federal one, such as Wisconsin and Iowa, and places like Mississippi and South Carolina have no state minimum wage, meaning $7.25 is the floor.
Beyond legal requirements, most businesses are now paying well above $7.25. Part of this is thanks to campaigns like The Fight for $15 — as in a $15 minimum wage — which has for years been a progressive rallying cry and legislative push. (That goal has inched up to $17, which proponents say is necessary because of inflation.) But a lot of the recent increases are thanks to the super-tight post-pandemic labor market in which companies in the service and retail sectors raised their base pay in an attempt to woo workers. Walmart's minimum is now $14, and it says its average associate makes over $17.50. Target's starting wages range from $15 to $24. It's not uncommon to see help-wanted signs outside fast-food restaurants and stores advertising $14 or $15 an hour. As The New York Times has pointed out, low-wage workers make more than their state's minimum wage basically everywhere.
We're not seeing these job losses that are claimed to be inevitable.
One of the tricky things standing in the way of a minimum-wage increase is a fear of what mandating higher pay might do to the labor market and the economy. Whenever there are rumblings of a government-ordered wage hike, the business community acts like the sky is falling. They claim that higher paychecks will drive them under — especially the little guys — and cause them to lay off workers en masse. Hyperbole aside, it's not unreasonable to wonder about the risks higher wages may pose. For workers, a $15 wage only matters if they get to keep their jobs.
The research on the impact of minimum-wage increases can be a bit of a choose-your-own-adventure situation — you can probably cherry-pick a research paper to back up whatever argument you're making. One 2019 review of the international literature on the impact of minimum wages found a "very muted effect" on employment and a significant increase in the earnings of low-wage workers. The Congressional Budget Office has a neat little calculator that lets you play around with its estimates of the effects of a federal minimum-wage hike. It predicts it would lift families out of poverty but could also result in some job loss.
"Even if we have unemployment tick up the next few months, the fact of the matter is with so few workers down around that $7.25 level, an increase is not going to affect that many businesses significantly," said Jacob Vigdor, an economist and professor at the University of Washington who has studied the impact of Seattle's minimum-wage hike in the mid-2010s.
Vigdor said his research found a 99.3% survival rate for Seattle businesses, and the labor market when the move was enacted was not as strong as it is now. He found that some workers, particularly those with less experience, saw their hours go down as businesses tried to compensate but that most people still saw a net increase in their paychecks. He said teens looking for their first jobs, in particular, wound up being losers.
More-recent hikes, like those for fast-food workers in California, also don't seem to have put tons of people out of work.
"We're not seeing these job losses that are claimed to be inevitable," said Justin Wiltshire, an assistant economics professor at the University of Victoria in British Columbia who has studied minimum-wage hikes in New York and California.
Michael Reich, an economics professor and the chair of UC Berkeley's Center on Wage and Employment Dynamics, told me that the cost of fast-food wage increases in New York and California were absorbed by small price increases, reduced turnover costs (because employees stayed longer), and reductions in excess profits. He added that much of the time, businesses worry that higher prices will hurt their sales without taking into account that their competitors will raise their prices, too.
"They're going to be in the same place, competitively, that they were before," he said, "but they often don't have that outlook."
David Neumark, an economist at the University of California, Irvine, told me he still thinks a higher minimum would lead to job loss. He acknowledges that the grounds of the labor market have shifted, but he still doesn't think the federal minimum ought to go up — or, if it does, it should be indexed locally and to inflation.
"It is certainly true that whatever the minimum wage was in any location three years ago or whatever, it is less binding now because wages have gone up," he said.
Once the minimum wage gets so high that it starts to cause a bunch of job loss, that's a problem. But what counts as "too high" isn't easily deciphered — and in many places across the country that have raised the minimum, that threshold doesn't seem to have arrived. There are potential trade-offs — a small increase in prices, for example — but it seems like they may be worth it in the name of putting more money in workers' pockets, supporting the economy, and helping businesses keep their staffers around.
It is impossible to predict the exact impact of a higher minimum wage at the federal level. A lot of the effect would depend on the labor market, competition, geography, and, importantly, the amount. The new progressive benchmark is $17 an hour, but there's plenty of space between $7.25 and that. Some of the aversion comes down to a simple fear of the unknown. If a higher minimum wage lifts millions of people out of poverty, that's incredible. But you also can't blame some people for worrying they might be one of the unlucky ones who have a hard time finding a new gig because businesses aren't hiring as much. You also can't blame consumers who fret about prices creeping up, even if only by a few cents. The business community has done a good job of messaging that higher pay will be the end of days in a way that really does scare people. But plenty of businesses can afford to pay their workers more, even if that means they profit less.
It's hard to argue that $7.25 an hour is a livable wage basically anywhere in America. That amounts to about $15,000 a year — less than one-third of the median wage in the country, at the poverty line for individuals, and well below it for families. In one of the richest countries in the world, you shouldn't be able to work a full-time job and still live in poverty. It's good for everyone when low-wage workers have more money in their bank accounts. They spend it, which is a positive for the economy. And workers at the very bottom aren't the only ones helped by a higher minimum.
"You look at several of the states that do not have minimum wage above $7.25 an hour, and the average earnings of low-wage workers, it's just a lot lower than it is elsewhere," Wiltshire said. "There is more income inequality between the median worker and the lowest-paid worker."
Over the past few years, we've seen that the US economy can sustain higher wages. At some point a downturn will hit, and the labor market will be more precarious. When that happens, workers shouldn't have to give back the hard-fought gains they've made over the past few years — especially given the evidence that it's not necessary. Few people have been making $7.25 for a while now. Businesses have survived, as has the economy. There's no good reason not to lock these wins in.
Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.