Should The Minimum Wage Be $15 An Hour?
In the earliest stages of the debate on raising the minimum wage to $15 an hour a couple of years ago, it seemed like a typical bargaining posture to me. No way, I figured did the striking fast food workers really believe they were gonna get $15 an hour. They were simply putting in a high opening bid in hopes of negotiating their way to something like $11 an hour. It seemed like a savvy ploy, and one that would ultimately bring considerably more good than harm in a nation where wages are at the lowest level of gross national product in recorded history.
But starting with the Seattle airport, the $15 an hour experiment became a reality. And from there, a few larger cities like San Francisco also adopted $15 an hour minimum wages and just this month, two our of nation's three largest states--California and New York--implemented statewide $15 an hour minimum wages to be phased in over the course of the next several years. Bernie Sanders and Martin O'Malley both endorsed nationwide $15 an hour minimum wages in their Presidential campaigns and held Hillary's feet to the fire for her more cautious $12 an hour position. But this past week, even Hillary has relented and succumbed to the momentum towards $15 an hour, so long as it's phased in over an extended time period. It's now clear that $15 an hour was not simply a negotiating posture...and it's becoming law in jurisdictions that represent a significant portion of the nation's population.
But is it sound policy? I'm in the camp of California Governor Jerry Brown, who reluctantly signed the law but conceded it was a high-stakes experiment. While conservatives and libertarians always freak out and channel their inner Milton Friedman any time there's a national debate about the minimum wage, even raising it from historic lows to slightly above historic lows, but the basic principles of Economics 101 suggest that there is a risk if the wage basement is raised above a certain tipping point. If the cost of labor rises above what the market can bear, some combination of price hikes, layoffs, and automation can theoretically do more harm than good. Is $15 an hour above that tipping point? Minimum wage expert Alan Krueger, generally a proponent of higher minimum wages, believes it may be and has been urging caution in going too quickly to $15 an hour. I tend to agree.
So are lawmakers in California and New York passing $15 an hour minimum wage requirements into law either naive or crazy in taking such a bold experiment? Maybe a little, but what doesn't get reported is that both states' hands are near the point of being forced to do something because there are so many low-wage workers qualifying for public assistance that the states are being driven to bankruptcy trying to bankroll all of it. And why are so many workers in these states qualifying for public assistance? There are a number of factors, but arguably the biggest is that there are so many employers in retail, health care, food production, and especially fast food that pay wages so low that taxpayers have to fill the void with public assistance. If these workers made $15 an hour, public assistance spending would contract substantially. So to the states, it ultimately becomes a question of whether billion-dollar multinational corporations with steep profit margins should be paying livable wages to their workers.....or whether they should be given a "wage subsidy" in the form of public assistance born by taxpayers to keep their workers out of poverty.
This would be an easy question to answer in favor of making the businesses pay more if the businesses didn't still hold the whip hand in the debate. The biggest concern is a movement towards automation, rendering the majority of existing fast food jobs obsolete in the event of labor costs going to high and adding even more instability to the process. It isn't at all outside the realm to imagine the fast food giants making this transition in the face of $15 an hour minimum wages and reports suggest the technology may be there to do just that. With this in mind, I'd prefer the same $12 an hour minimum wage that Hillary was originally advocating as the most sensibly cautious approach. Even at its highest level of value historically, I believe in 1968, the minimum wage would be worth about $11 an hour in today's value. Going more than 50% higher than most historical precedent just seems like more than what the job market can absorb.
But the most troubling part of the minimum wage increase debate has nothing to do with whether the increase would be economically sound policy. Most troubling is how the prospect of low-wage workers getting a raise is perfect fodder for exploiting the usual intra-class resentments. All too often, the group of people most loudly and passionately rallying against a higher minimum wage for low-income workers are....their own working-class neighbors.....seething with jealousy and resentment at the prospect of "those people" getting paid more for an honest day's work. The fact that a minimum wage increase injects more demand into the economy and facilitates an environment where everybody's wages ultimately go up matters not at all to them, even if thoroughly explained. Their jealousy and resentment runs so deep that they'd rather lose out on a raise themselves if it means their neighbor is able to climb just a little bit out of the gutter.
This is the primary reason why so many downscale voters are receptive to the Republican Party's economic message.....the obsession with making sure that your "unworthy" neighbor takes it on the chin. Interestingly, most Americans are theoretically opposed to the rising tide of inequality in our economic system and pay lip service to the unfairness of our current arrangement where the rich devour nearly everything the economy produces. But when a practical effort to offset some of that inequality is introduced, they reflexively go into attack mode because at the gut level they believe low-income workers deserve what they get. The same is true with the public assistance angle that people are constantly getting their panties in a wad about, sometimes legitimately. For as much grumbling as they do about all the people on public assistance, a higher minimum wage would reduce the need for so much public assistance to so many workers.....yet they still passionately argue against it. Ultimately, what matters most to them is an economic caste system with a clearly defined bottom......a bottom that they are obsessed be occupied by people other than themselves at all costs and will rail against any effort to scramble that status quo.
With all that in mind, the experiences of California and New York and their new supersized minimum wage will be fascinating to track. There's a decent chance they pushed the envelope too far and will face rising unemployment as a result. But there's also a chance the higher wages among currently low-income residents will trigger a multiplier effect of economic activity and corresponding wage growth for everyone in those states while simultaneously freeing up some money in the budget currently going towards public assistance for all the workers about to get a big raise. If it's the latter and the minimum wage increase is a success, it'll be fascinating to see if other states follow suit....or if they still resist because resentment for your neighbor getting a raise still matters more than crafting a healthy economy and job market.
But starting with the Seattle airport, the $15 an hour experiment became a reality. And from there, a few larger cities like San Francisco also adopted $15 an hour minimum wages and just this month, two our of nation's three largest states--California and New York--implemented statewide $15 an hour minimum wages to be phased in over the course of the next several years. Bernie Sanders and Martin O'Malley both endorsed nationwide $15 an hour minimum wages in their Presidential campaigns and held Hillary's feet to the fire for her more cautious $12 an hour position. But this past week, even Hillary has relented and succumbed to the momentum towards $15 an hour, so long as it's phased in over an extended time period. It's now clear that $15 an hour was not simply a negotiating posture...and it's becoming law in jurisdictions that represent a significant portion of the nation's population.
But is it sound policy? I'm in the camp of California Governor Jerry Brown, who reluctantly signed the law but conceded it was a high-stakes experiment. While conservatives and libertarians always freak out and channel their inner Milton Friedman any time there's a national debate about the minimum wage, even raising it from historic lows to slightly above historic lows, but the basic principles of Economics 101 suggest that there is a risk if the wage basement is raised above a certain tipping point. If the cost of labor rises above what the market can bear, some combination of price hikes, layoffs, and automation can theoretically do more harm than good. Is $15 an hour above that tipping point? Minimum wage expert Alan Krueger, generally a proponent of higher minimum wages, believes it may be and has been urging caution in going too quickly to $15 an hour. I tend to agree.
So are lawmakers in California and New York passing $15 an hour minimum wage requirements into law either naive or crazy in taking such a bold experiment? Maybe a little, but what doesn't get reported is that both states' hands are near the point of being forced to do something because there are so many low-wage workers qualifying for public assistance that the states are being driven to bankruptcy trying to bankroll all of it. And why are so many workers in these states qualifying for public assistance? There are a number of factors, but arguably the biggest is that there are so many employers in retail, health care, food production, and especially fast food that pay wages so low that taxpayers have to fill the void with public assistance. If these workers made $15 an hour, public assistance spending would contract substantially. So to the states, it ultimately becomes a question of whether billion-dollar multinational corporations with steep profit margins should be paying livable wages to their workers.....or whether they should be given a "wage subsidy" in the form of public assistance born by taxpayers to keep their workers out of poverty.
This would be an easy question to answer in favor of making the businesses pay more if the businesses didn't still hold the whip hand in the debate. The biggest concern is a movement towards automation, rendering the majority of existing fast food jobs obsolete in the event of labor costs going to high and adding even more instability to the process. It isn't at all outside the realm to imagine the fast food giants making this transition in the face of $15 an hour minimum wages and reports suggest the technology may be there to do just that. With this in mind, I'd prefer the same $12 an hour minimum wage that Hillary was originally advocating as the most sensibly cautious approach. Even at its highest level of value historically, I believe in 1968, the minimum wage would be worth about $11 an hour in today's value. Going more than 50% higher than most historical precedent just seems like more than what the job market can absorb.
But the most troubling part of the minimum wage increase debate has nothing to do with whether the increase would be economically sound policy. Most troubling is how the prospect of low-wage workers getting a raise is perfect fodder for exploiting the usual intra-class resentments. All too often, the group of people most loudly and passionately rallying against a higher minimum wage for low-income workers are....their own working-class neighbors.....seething with jealousy and resentment at the prospect of "those people" getting paid more for an honest day's work. The fact that a minimum wage increase injects more demand into the economy and facilitates an environment where everybody's wages ultimately go up matters not at all to them, even if thoroughly explained. Their jealousy and resentment runs so deep that they'd rather lose out on a raise themselves if it means their neighbor is able to climb just a little bit out of the gutter.
This is the primary reason why so many downscale voters are receptive to the Republican Party's economic message.....the obsession with making sure that your "unworthy" neighbor takes it on the chin. Interestingly, most Americans are theoretically opposed to the rising tide of inequality in our economic system and pay lip service to the unfairness of our current arrangement where the rich devour nearly everything the economy produces. But when a practical effort to offset some of that inequality is introduced, they reflexively go into attack mode because at the gut level they believe low-income workers deserve what they get. The same is true with the public assistance angle that people are constantly getting their panties in a wad about, sometimes legitimately. For as much grumbling as they do about all the people on public assistance, a higher minimum wage would reduce the need for so much public assistance to so many workers.....yet they still passionately argue against it. Ultimately, what matters most to them is an economic caste system with a clearly defined bottom......a bottom that they are obsessed be occupied by people other than themselves at all costs and will rail against any effort to scramble that status quo.
With all that in mind, the experiences of California and New York and their new supersized minimum wage will be fascinating to track. There's a decent chance they pushed the envelope too far and will face rising unemployment as a result. But there's also a chance the higher wages among currently low-income residents will trigger a multiplier effect of economic activity and corresponding wage growth for everyone in those states while simultaneously freeing up some money in the budget currently going towards public assistance for all the workers about to get a big raise. If it's the latter and the minimum wage increase is a success, it'll be fascinating to see if other states follow suit....or if they still resist because resentment for your neighbor getting a raise still matters more than crafting a healthy economy and job market.
posted by Mark at 8:55 PM
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