Points made about raising the minimum wage, explained

Let’s take a look at some of the most prevalent points made about raising the minimum wage.

Debating an increase to a minimum wage, whether it’s federal or state and local, usually follows common fault lines: worker well-being vs. employer solvency, higher consumer spending power vs. higher inflation, stuff like that.

There is a lot to this debate. To give you a clear idea, I’ll present common arguments for and against raising the minimum, and include counterpoints for both groups. While I won’t be giving an exhaustive list, I think these points cover the basics.

Just a few notes before going on. I’m listing my sources for the for/against arguments at the end since I cite them multiple times. If you think I’m fast and loose with my points, feel free to contact me or leave a comment.

I’ll also be leaning heavily on the Raise the Wage Act of 2019 (“RWA”), since it’s recent and has a lot of analysis available. The act would raise the federal minimum to $15 an hour over six years before indexing it to inflation. It would also increase the minimum for tipped workers, new employees, and workers with disabilities.

Pro-increase points, with critiques

Let’s start with the pros, which are broadly interconnected. A minimum wage increase would:

• Increase income for low-wage earners and some higher earners
• Decrease the number of individuals living in poverty
• Increase worker well-being
• Provide an overall economic stimulus

This first one is obvious: by raising the minimum wage, those earning the current minimum would see higher earnings. There would also be a “spillover” effect for higher earners since employers would need to attract or retain those currently making above the minimum. To get an idea of how many people would see an increase, the Economic Policy Institute estimates the RWA would increase the hourly rate for almost 40 million Americans by 2025.

With many workers getting paid more, there would be fewer people living below the poverty line. In addition to improving the well-being of millions of people, it could also reduce the strain on our human services like SNAPs, housing assistance, and health care.

Increasing the minimum would also act as an economic stimulus in two ways. First, worker spending power would increase, meaning they can purchase more goods and services and provide additional revenue to businesses. Second, higher wages would mean more revenue if the government in question uses an individual income tax. (The federal gov and most states do.)

Opposing responses to these points often start with the premise itself. For instance, the reason for these mandated wage increases—to address poverty—isn’t the responsibility of employers, but the government. By increasing the minimum wage rather than lowering the cost of living, a government is passing the buck to firms rather than fulfilling its own responsibilities.

Opponents also respond by saying the potential improvements are overstated. According to the U.S. Government Accountability Office and the Cato Institute, most workers making the minimum wage or slightly above it don’t live in poverty. Many either live at home with their parents or work another, higher paying job, presumably insulating them from poverty.

Anti-increase points, with critiques

Let’s turn to some of the big points in opposition to a wage increase. An increase to the minimum would:

• Increase labor costs, hurting businesses
• Decrease overall employment
• Add to inflation, increasing costs of goods and services for consumers
• Lower overall income for some families

Understanding the toll a wage increase may have on a business is pretty easy. If the firm has to compensate its employees at higher rates, they’d have less money for other important components of their business. This isn’t an attractive development for business owners, so some would want to offset the higher costs.

To do so, an employer might cut work hours. This happened in Seattle, where “part two” of a minimum wage increase led to reduced worker hours by as much as 7%. A business could also layoff employees, decreasing overall employment in the process. In its analysis of the RWA, the nonpartisan Congressional Budget Office found the increase could lead to as many as 1.3 million workers becoming jobless by the end of 2025.

If they didn’t want to cut staff or hours, a business could also pass the added costs onto the consumer by raising the costs of its goods or services—the “pass-through effect.” Doing so might add to inflation.

Finally, an increase to the minimum might induce a decline in overall family income. Part of this decline is attributed to the possible spike in layoffs plus a loss in income for the business owners who now have to pay more for labor.

There are some strong counterpoints to a few of these. First, much of the foundational research regarding an increase to the minimum wage is flawed because it relies on the concept of perfect competition, in which a market’s supply and demand are in equilibrium (plus some other stuff). Most industries and sectors just don’t work this way; it’s unrealistic.

A lot of this research was also conducted some time ago or focus on the federal level, meaning there’s less consideration for more recent wage increases among states and local governments. Many of these recent increases happen in phases, unlike previous ones at the federal level.

Second, some of the particular points seem to be misrepresented. For instance, the Upjohn Institute found that the scope of the pass-through effect is much smaller than some think after it reviewed recent wage increases in states and cities. Additionally, the CBO report on the RWA stated that the potential adverse effects were very uncertain. Finally, connecting wage increases to inflation in this way often ignores the countless other confounding factors in an economy.

Discussion

There’s a lot to process above, and of course there’s more I didn’t get into or mention. This doesn’t mean we can’t draw some conclusions, however. Here are a few insights.

First, there’s a point that the Cato Institute had about how many workers live in poverty. The author explains that we measure poverty at the household level, so the argument that a wage increase would assist individuals living in poverty is a form of misdirection. He goes on:

“Many people earning around the current minimum wage are second earners (particularly part‐​time workers) or young people who live in households with parents who are not poor.”

Data backs this up, but this doesn’t prove “they don’t need raises” or anything like that. The reasoning makes it seem as though these workers are choosing to work part-time or to live at home with their parents.

But doesn’t that framing seem backwards? Instead, maybe workers aren’t choosing to work a second job or live at home. Maybe they’re forced to because of low wages.

If we were to increase wages, my guess would be people wouldn’t need to work more than one job; they might be able to live on their own or at least separately from family. Either way, they’d have the choice to do so.

Next, some question why we should increase the federal minimum when states and cities have been doing so themselves. That’s not as good a point as you’d expect.

The federal minimum isn’t a livable wage anywhere in the U.S., so by not raising it, we’re allowing some states to allow poverty wages and maintain economic inequality. While some states have taken the initiative, others haven’t and don’t seem likely to do so. Even if Congress significantly watered down the RWA, any increase would significantly help workers everywhere.

Let’s end with, “We should reduce the cost of living in lieu of a wage increase.” That’s a point made by the Cato Institute, and it’s a good one. We would be talking much less about adjusting the minimum wage if the cost of living wasn’t so high and increasing so quickly. Stuff like housing and health care continue to eat up large chinks of a person’s income, creating what one writer at The Atlantic called the “Great Affordability Crisis.”

But in order to reduce or freeze the cost of living, we would need an unprecedented federal intervention or coordination among different industries (which in some cases could be illegal under current U.S. law), or some combination of both…

It’s a bit ironic to hear a conservative organization like Cato say we should focus on things that sound revolutionary or like big structural change. But this argument shows that there is real concern for the economic well-being of the American worker shared by traditional opponents. (There’s just a huge difference in opinion on how to address it.)

In any case, I would agree that an increase to the minimum wage isn’t a silver bullet. There’s simply so much else represented and hidden in our economy, a “confluence of causes at work” as the Brookings Institute put it. However, it would help so many in the short run.

Final thoughts

After looking through papers and data on this topic, I think one of the biggest hurdles in addressing it is also framing. We shouldn’t be pitting employees against employers and vice versa, or strictly using a cost-benefit approach.

There’s a prevalent disconnect between the economic data and the people that make up the economy, and between those in differing economic statuses. People truly are living in separate versions of American depending on their income or economic status. A lack of person-to-person and employer-to-employee empathy has played a huge part in this debate (here’s an example) and we’ll need to address this if we want to move forward properly.

I know some think wage increase supporters “rely on raw emotion” too much when talking about wage increases. I don’t believe it’s a bad thing to use a moral argument for increasing the minimum wage. We just need to also draw attention to the countless other issues in front of us. We need to walk, chew bubblegum, and not step in dog poop at the same time.

Finally, we need to acknowledge that no economy is strong if millions of workers have to string together several jobs just to be able to exist with dignity. Frankly, none of what the U.S. has built over the years is worth it if we continue to under-appreciate low-wage earners. We need to increase the federal minimum wage.

Related reading:

• The Center for Budget and Policy Priorities gives its own policy brief on the minimum wage.
• The National Employment Law Project argues the “higher wages equal fewer jobs” point is invalid.
• UC Berkeley analyzed the RWA and came to the same conclusions as the Economic Policy Institute.
• The EPI has a letter signed by prominent economists who support the RWA.
• The Illinois Economic Policy Institute analyzed wage increases in Chicago and found little to no adverse effects in the first two years.
• The Cato Institute looks at other approaches to alleviate poverty.
• The Washington Center for Economic Growth explains why we should consider indexing the minimum wage to the median wage.

Sources

• The Economic Policy Institute’s report on the Raise the Wage Act
• The Cato Institute’s memo on justifications for a wage increase
• The GAO’s data on workers living in poverty (found through Cato Inst.)
• The National Board of Economic Research’s report on the minimum wage increases in Seattle
• The CBO’s analysis of the Raise the Wage Act
• A quick review of “perfect competition”
• The Upjohn Institute’s working paper on the “pass-through effect”