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Minimum Wage Increases Are Good: Fact or Fiction?

© Onblast | Dreamstime.com - <a href="https://www.dreamstime.com/stock-illustration-payroll-salary-payment-money-wages-concept-vector-illustration-image72312880#res2965056">Payroll Salary Payment Photo</a>There’s no easy answer to this question. In the course of Senator Sander’s presidential bid, the call for a $15 minimum wage rate was loud and clear. Some localities have already adopted this rate; others are considering it.

What are the real economic results of a substantial hike in the minimum wage rate?

Why it’s a good thing

There are certainly some compelling arguments on why a $15 minimum wage is a good thing. A couple of years ago, economist Robert Reich listed 7 reasons:

  1. It is keeping up with inflation
  2. The current rate isn’t enough to keep workers out of poverty
  3. Even with the rate hike, minimum wage workers still require subsidies (e.g., food stamps)
  4. The increase won’t result in job losses
  5. The increase won’t result in price hikes
  6. Democrats should aim for a high rate because Republicans will argue for something lower
  7. It’s the morally right thing to do

In 2014, Seattle increased its minimum wage to $15 per hour, phased in for employers with fewer than 500 employees over 7 years. The Evans School for Public Policy & Governance found that there was “little or no evidence” of price increases in Seattle following the initial increase.

Why it’s a bad thing

While workers who receive a higher pay rate as a result of a higher minimum wage will benefit, there is some evidence to suggest that some workers won’t. Some workers will lose their jobs while others will have lower take home pay because of reduced hours. That was, in fact, the finding from the Employment Policies Institute. In a survey of employers in the District of Columbia, which saw a minimum wage hike from $8.25 per hour to $11.50 per hour in 2014, and has a proposal for another increase to $15 per hour, nearly half had already laid off workers or cut hours in response to the increase. More than half planned to raise prices to offset their higher payroll costs. In other words, this survey found that Reich’s points #4 and #5 weren’t true. One more point in the survey: If a $15 rate were implemented in D.C., 20% of businesses would relocate (e.g., Virginia uses the federal minimum rate, which is currently $7.25 per hour, which is half of the $15 rate).

Some employers in Oregon are grumbling at their higher minimum wage rate law enacted in March. Under the new law, rates are set to rise by 2022 to $12.50 in rural Oregon, $13.50 in mid-sized regions, and $14.75 in the Portland area. Unions want the rate to go to $15 per hour statewide, but not everyone is happy. One orchard owner said he would suffer; he couldn’t just raise prices to offset the payroll hike because consumers won’t pay for Oregon fruit when fruit from other states or other countries are cheaper.

Conclusion

Small business owners are just about split on the question of whether it would be good to raise the minimum wage to $15 per hour, according to a Manta survey  last April. While 49% oppose the increase, 51% are in favor of it.

The truth about whether raising the minimum wage is good probably lies somewhere in the middle: there are some compelling reasons to do the raise, but it’s important to anticipate the consequences. Gradual increases likely will help markets adjust without causing disruptions to workers, employers, and consumers.

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