President Joe Biden on Friday is expected to introduce his proposal to raise the federal hourly minimum wage, which has been stuck at $7.25 since 2009. Biden will begin the process by requiring that everyone working for the federal government be paid a minimum of $15 an hour.
Organized labor and its supporters have been agitating for a $15-an-hour minimum wage for nearly a decade, but shifting political winds, the embrace of populism by both parties and widespread financial pain for Americans at the bottom of the income spectrum make a minimum wage hike a policy whose time may finally have come.
“If the federal minimum wage were to be raised it would provide a much-needed financial shot in the arm for many of those still in a position of financial fragility,” said Mark Hamrick, senior economic analyst at Bankrate.com.
Resistance to raising the wage floor has waxed and waned over the years, he added. “Before the erosion of the political middle ground in recent years, the idea of a federal minimum wage was far from controversial. It was seen as helping the economy and also reflected a statement that labor was valued.”
Putting more money in the hands of workers could boost economic activity at a time when it is flagging. “That money would be put to work through consumer spending, and savings, ultimately providing support to the broader economy,” Hamrick said.
It could also help taxpayers. In a new report, researchers at the Center for Labor Research and Education at the University of California, Berkeley, found that nearly half of poor families rely on one or more of the five taxpayer-supported safety net programs including Medicaid, the Children’s Health Insurance Program, Temporary Aid for Needy Families, the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program. Collectively, this costs taxpayers $107 billion a year — money that worker advocates contend could be put to better use were it not effectively subsidizing corporations’ strategy of holding down labor costs by letting publicly funded assistance pick up the slack.
Advocates for a higher minimum wage also make the argument that corporate America can bear the cost of a higher minimum wage more easily than families forced to live hand-to-mouth. “In general, most analysts agree that the benefits to working people far outweigh any such costs,” said Ruth Milkman, a professor of sociology at City University of New York.
Companies that employ large numbers of low-wage workers would bear the brunt of the economic hit, analysts say. Big corporations, especially fast-food restaurant chains like McDonald’s and national retail behemoths like Walmart, would see the greatest impact. Even those that currently pay more than the prevailing minimum wage in their locations, such as Amazon, which rolled out a $15 minimum hourly wage in 2018, would probably have to raise that wage floor in order to keep their recruitment and retention competitive.
“In the near term, I don’t think Amazon has to worry too much about that, but at some time they’ll likely want to keep ahead of the minimum, and they’ll have to adjust,” said Harry Holzer, a professor of public policy at Georgetown University.
“Basically, any company that employs lower-wage individuals will see increased cost,” said Sam Stovall, chief investment strategist at CFRA Research.
A new federal minimum wage could be structured in a way to lessen the impact on mom-and-pop stores and restaurants, many of which are already in dire straits as a result of the pandemic. “To mitigate potentially negative impacts, the minimum could be applied in more nuanced ways to account for regional differences as well as scale of the enterprise and phased in over a period of years,” Hamrick said, adding that indexing the minimum wage to a benchmark inflationary metric would ensure that low-wage workers don’t get left behind when costs rise.
Despite the bitter political polarization in the United States today, public opinion polls of voters in red and blue states both show strong support for a higher minimum wage. An August survey found that 72 percent of Americans — including 62 percent of Republicans and 87 percent of Democrats — said the minimum wage should be high enough to keep full-time workers above the poverty line.
This could increase the likelihood of a higher minimum wage being embraced on a bipartisan basis. “The low-wage business sector hates it and the conservative lobbyists hate it but it's quite popular even in the red states, so it’s possible you could find some Republican senators say, ‘My constituents like this,’ especially some of the more populist Republicans,” Holzer said.
But hiking it to more than double its current level of $7.25 an hour might be a hard sell, Holzer added, particularly in the heartland. “I’m guessing if a minimum wage does pass it might be more like $10 or $12 rather than $15, and it might be implemented slowly,” he said. “For lots of big cities and populous states that have already implemented it, it’s not a terrible idea. Those are high-wage, high-priced areas already. The problem is, in the states that have a lot of rural areas, $15 is not far below the region’s median,” he said. “This risk that some of those jobs would disappear is higher there.”
The question of how many jobs disappear when wages rise has been hotly debated and exhaustively studied, but researchers have come to widely disparate conclusions. “Predictions that higher minimum wages would lead to job elimination are highly exaggerated, at best,” Milkman said.
The nonpartisan Congressional Budget Office determined in a 2019 report that raising the hourly minimum wage incrementally to $15 by 2025 could shave, at the median, 1.3 million jobs from the labor force, but would also lift 1.3 million people out of poverty and contribute an additional $8 billion to the aggregate household income of these families.
Given the seismic disruption of the jobs market wrought by the pandemic, implementing policies that curb job growth might seem risky, but the particular distortion created by the pandemic could actually mitigate the negative impact, some suggest. The conventional wisdom is that higher minimum wages motivates companies with large low-wage workforces to invest in equipment and robotics to facilitate more automation — investments many are actually making now in order to cut down on person-to-person contact and inhibit the transmission of Covid-19.
“Whatever automation could take place would be accelerated,” Stovall said, pointing to the number of brands that now advertise touch-free or contactless transactions. “I think there’s going to be more of that.”
“The pandemic accelerated, in many dimensions, the shift towards technology,” Holzer said. “A $15 minimum wage would likely shift it even more… even though a lot of that would be occurring anyway.”