Economists disagree about who, how much wage hike will help
By Roy Maurer
March 14, 2019 - SHRM
A bill that would increase the federal minimum wage from $7.25 an hour to $15 an hour over the next six years is moving to a full House vote.
The House Education and Labor Committee passed the Raise the Wage Act on March 6.
Introduced by Rep. Bobby Scott, D-Va., the bill would also erase separate minimums for tipped workers and workers with severe disabilities. The minimum wage would rise gradually until it reached $15 an hour in 2024. After that, the wage would be adjusted annually to reflect changes in the national median hourly wage.
"Gradually raising the minimum wage is good for workers, who experience a better standard of living; good for businesses, which benefit from having more customers and less turnover; and good for the economy, which is strongest when we lift working people out of poverty and build a thriving middle class," Scott said before the committee's vote. "After 10 years with no increase in the federal minimum wage, minimum-wage workers have suffered a 17 percent pay cut due to inflation. Today's minimum-wage worker making $7.25 an hour has less buying power than a minimum-wage worker had in the 1960s."
The legislation is now headed for a vote in the Democrat-controlled House, where passage is likely. But approval in the Republican-controlled Senate will be more difficult.
Committee Republicans argued that more than doubling the federal minimum wage will lead to millions of job losses and difficulties for small businesses.
The bill "will hammer small businesses and mom and pop shops," said Rep. Virginia Foxx, R-N.C. "It will push hundreds of thousands of able-bodied, talented individuals out of the workforce over the next decade. It will result in millions of jobs being eliminated for vulnerable members of the workforce like single working moms, workers without a high school diploma and entry-level employees."
GOP Amendments Fail
The Democrat-led committee rejected all seven amendments that Republicans proposed, including measures that would:
The congressional action follows the Fight for $15 campaign, spurred by labor unions and worker advocacy groups, which has triggered dozens of worker protests and convinced several states to raise their minimum wages in recent years. A total of 29 states and Washington, D.C., now have minimum wages higher than the federal $7.25.
Competing Economists Speak Out
Labor market economists representing both sides of the debate disagree about what the consequences of a $15 minimum wage would be for U.S. workers and employers.
Scott brought up a 2019 report published by the Economic Policy Institute (EPI), which found that close to 40 million workers would receive a raise if the legislation was signed into law. EPI arrived at that figure by calculating that 28.1 million workers make less than $15 per hour and would be directly affected by the proposed increase. Another 11.6 million workers would benefit from a spillover effect as employers raise the wages of workers making just over $15 per hour to maintain progression in their internal pay scales.
"About 25 percent of all workers earned $13 or less per hour in 2018, and the vast majority of them would benefit from a minimum-wage increase to $15," said EPI economist Ben Zipperer.
He added that he and other researchers studied 138 state-level minimum-wage increases from 1979-2016 and concluded that "they significantly raised wages without reducing the employment of low-wage workers."
Those findings are contradicted by research from the American Enterprise Institute (AEI), which concluded that minimum-wage increases exceeding $1 per hour enacted between 2013-2015 reduced employment among low-wage earners.
"In my research, I have found evidence that employment decreases when minimum-wage rates are increased," said Michael Strain, director of economic policy studies at AEI. "Increasing the federal minimum wage from its current level of $7.25 per hour to $15 per hour over a six-year period will likely have a significant and negative effect on employment. The reduction in employment opportunities will be felt most strongly among workers with relatively fewer skills and workers with relatively less labor market experience."
Strain also cited a 2014 Congressional Budget Office (CBO) analysis that found that increasing the federal minimum wage to $10.10 per hour would reduce employment by 500,000 workers.
Who Gains?
There's also disagreement over how many people and who exactly would benefit from a federal minimum-wage hike. Foxx cited Bureau of Labor Statistics data, which show that only 2.3 percent of the country's 80.4 million hourly workers earn $7.25 an hour or less, and that about half of those workers are under the age of 25.
But the EPI study found that workers between the ages of 25-54 would be the biggest beneficiaries of a proposed federal minimum-wage hike to $15 an hour, and that only 9 percent of the 40 million workers who would benefit from the raise were teenagers.
Douglas Holtz-Eakin is an economist, former director of the CBO and president of the American Action Forum, a Washington, D.C.-based policy and research group. He countered that raising the minimum wage is an ineffective way to help low-income workers because the majority of those earning the federal minimum are living in households well above the poverty line.
"Minimum-wage workers are from families across the income distribution," he said. "Eighty percent of those who make the federal minimum wage of $7.25 per hour are not in poverty. Meanwhile, over one-third of minimum-wage workers are young adults who still live with their parents. … [T]he incomes of those families average more than $100,000."
Holtz-Eakin said a 2015 study conducted by the American Action Forum and the Manhattan Institute found that only 6.7 percent of the net change in wage earnings would go to workers in poverty if the federal minimum wage was $15 per hour.
"Twice as much, 14.7 percent, would go to workers with family incomes over
six times the poverty threshold," he said. "Consequently, at best, a
$15-per-hour minimum wage will only marginally help low-income
workers."