I know a teenager who works at a warehouse for $14 an hour. If Congress passes President Joe Biden’s plan to raise the federal minimum wage to $15 (gradually, over four years), this young man would eventually benefit, but not much.
He would benefit more if he lived in Alabama, where the cost of living is low, but much less if he lived in California. If he lived in Seattle, where the city’s minimum wage is $16.69, as of Jan. 1, and if he had a similar job, he might consider his newfound raise a windfall. That is, until he tried to find a place to live.
Americans can’t really begin a serious discussion about the minimum wage without first recognizing that its 330 million people are scattered among different, sometimes widely varying markets.
Unfortunately for this political climate, this is a complicated issue.
It might make more sense to settle the wage issue in state houses and city halls. If you believe in the premise that when government puts its thumbprint on the economy, it can’t help picking winners and losers while messing with the natural ebb and flow of markets, you probably would agree it’s better to keep that thumb as close to home as possible.
That’s already happening, to some extent. Twenty-nine states, plus the District of Columbia, have minimum wages higher than the current federal minimum of $7.25. Some, like Georgia and Wyoming, have lower minimums, which typically apply only to businesses not engaged in interstate commerce. Several, including Utah, simply default to the federal wage.
Or perhaps, as some have suggested, Congress should set a median minimum wage, then adjust it up or down depending on the cost of living in each market.
You could ask a roomful of economists about this and get a couple of rooms full of opinions, which is why that premise about government is a good guidepost.
About that thumbprint, economists argue endlessly over whether requiring businesses to pay more would cost jobs.
The nonpartisan Congressional Budget Office has taken a dry-eyed look at how increasing the minimum wage to either $10, $12 or $15 would affect employment and family income by 2025. The answer is a bit in between what advocates on either side of the issue are saying.
A $15 wage as proposed in the Raise the Wage Act of 2021, the CBO said recently, would pull 900,000 Americans above the poverty line by 2025, but it would cost another 1.4 million workers their jobs. Also, the deficit would rise by $54 billion and the price of goods and services would increase.
A similar report two years ago said the impacts would be less for a $12 wage, helping about 400,000 people escape poverty and sending about 300,000 to the unemployment line. For $10 an hour, you don’t change much either way.
That’s because the market generally has left the 12-year-old $7.25 minimum wage in the dust. As the Wall Street Journal recently noted, even WalMart starts workers at $11 an hour these days.
The Bureau of Labor Statistics reports that, in 2019, 1.6 million people earned at or below the federal minimum. That’s a scant 1.9% of all hourly wage earners. By comparison, the usafacts.org website says 13% earned the minimum wage back in 1980, demonstrating how irrelevant it has become to most Americans.
And of that 1.9% who earn it today, the largest share is among workers 16-24 years old, which includes a lot of students with part-time jobs, either living at home or getting help from parents.
That doesn’t erase the fact that minimum wage earners also include some low-skilled, uneducated adults struggling to care for families — a fact that often leads to greater federal expenditures through other social programs.
So, which should it be — cost a bunch of workers their jobs by raising the minimum a lot, or raise it a bit to catch up with the market and cause as little harm as possible? That wouldn’t affect the teenager I spoke of earlier much. It also wouldn’t give much relief to those few struggling families who work for the minimum.
The real issue here for many people is the ability to afford a place to live and food to eat. Doing that through a minimum wage may be a never-ending circular race to catch our own tails, even if future increases were automatically tied to increases in median wages. Consider that, in Salt Lake County alone, rent rose 9% last year alone, and it’s still going up.
Maybe a better choice would be to increase earned income tax credits, provide better adult education and training programs, do a Mitt Romney-like monthly payment to families or provide some other basic income program.
Wouldn’t it be good to have a serious discussion about all those things rather than endure the predictable political barbs about the minimum wage likely to drive this decision?