Brett Litzler is a staff writer for Brief Policy Perspectives and a first-year MPP student.
The following is an op-ed and does not necessarily reflect the views of Policy Perspectives or the Trachtenberg school.
With the Democratic Party now in control of both houses of Congress and Joe Biden in the Oval Office, progressive activists have reignited their calls for aggressive, sweeping policy change. One such proposal is to raise the federal minimum wage from the existing $7.25 per hour to $15 per hour. As is often the case when major policy or legislation is discussed, there has been much debate and discussion about the perceived effects of nearly doubling the minimum wage. In particular, those opposed to the minimum wage increase have made claims that it will lead to businesses firing millions of people in order to cut down on labor costs, or that businesses will raise prices in order to offset increased labor costs, which would mean the benefits of a wage increase would be largely negated by higher prices on consumer goods. The purpose of this piece will be to summarize evidence on the effects of a minimum wage increase in order to determine if the arguments against it hold water.
Does the Minimum Wage Cut Jobs?
One of the most popular claims about the minimum wage is that it would result in millions of lost jobs, as wage increases will force businesses to lay off employees that have become too expensive to pay. Opponents have cited the Congressional Budget Office’s report from 2019 to support this claim. The report does note that employment will decrease, but only by 600,000 jobs by 2023, which is an extremely small number compared to the 10 to 17 million people who would see a wage increase.
Predicted decreases in employment should also be analyzed and viewed critically. A decrease in the rate of employment is not necessarily bad for those who are no longer working. Imagine, for example, a family in which two adults work full time for the current federal minimum wage of $7.25 per hour. With a minimum wage increase, one adult is now earning nearly the same amount of money that both adults were earning originally. It is not hard to imagine in this scenario that one adult would elect to drop out of the labor force to take care of children or pursue more education.
Does the Minimum Wage Increase Automation?
A concern going hand-in-hand with supposed job cuts and rising costs, minimum wage opponents argue that rising labor costs encourage firms to automate or offshore much of their labor. Think self-checkout lines at grocery stores or kiosks at fast-food restaurants. The argument is sound on its face: if firms are required to pay more for labor and it becomes cheaper to replace a person with a computer, they will do exactly that. The problem with this argument, however, is that it is already cheaper for businesses to automate many of these jobs. Automated cashiers at restaurants and grocery stores are on the rise, as they allow businesses to cut jobs or redeploy staff to other work. Raising the minimum wage would likely hasten this, yes, but this is not a reason to be opposed to minimum wage workers taking home a bigger paycheck. It is also not a reason to oppose automation. The effects of automation do need to be addressed, but it will need to be with an enriched and empowered welfare state that combines new and old ideas like universal basic income and universal healthcare, not by protecting businesses from paying their employees a living wage.
Does the Minimum Wage Raise Prices for Consumers?
Another common argument against the minimum wage is that in order to keep people employed, businesses will need to raise prices. One critic on Twitter posited that Taco Bell would need to raise burrito prices to $38. However, according to PolitiFact, this is far from the truth. They noted that there is already evidence from states and localities that have embraced the $15 per hour minimum wage, such as in New York City, where the price of a burrito remains $1.89. Prices for consumers vary widely across the country because costs for businesses vary across the country. Raising the minimum wage will probably lead to an increase in costs of consumer goods, but research from the W.E. Upjohn Institute indicates that these increases would be very small, or even nonexistent given a phase-in period like the 5-year period that President Biden and Democrats in Congress are proposing.
The proposals made by the Democratic trifecta to raise the minimum wage from its current $7.25 per hour to $15 per hour over a phase-in period of five years is more than reasonable. As it also becomes more likely to be enacted, those opposed to the idea have become increasingly vocal. In reviewing some of the most common arguments against it, it becomes clear that on the whole these arguments either do not hold up or are not reason enough to forego the obvious and direct benefit to the lowest-paid members of our society.