Restaurants, movie theaters, hotels, sports stadiums, and more. All of these have two things in common: Americans frequently patron them for entertainment and food service, and they all rely on a low-skilled, low-paid workforce in order to remain profitable. And in turn, these businesses provide goods, services, and jobs to the population. Most of this workforce earns an amount either equal to or near the federal minimum wage, but in recent years, many of them have begun to demand higher wages. In response, a congressional proposal to raise the federal minimum wage to $15 is threatening to jeopardize the stability of this labor market, and the financial well-being of the workers within it.
The History of the Minimum Wage
The minimum wage in the United States was first instituted in 1938, when President Franklin Roosevelt signed the Fair Labor Standards Act into law. The wage was first set at 25 cents an hour, and has been intermittently increased throughout history. The most recent alteration to the federal minimum wage was in 2009, when it increased to $7.25 per hour.
It has been eleven years since the last increase to the federal minimum wage, the longest time period between changes since the wage was first enforced in 1938. Due to inflation, the wage has lost 17% of its purchasing power since 2009, which means that what $7.25 was worth then is only worth $6.02 today, and that value will continue to fall as long as the wage remains unchanged.
As a result, this has led to much debate surrounding the minimum wage.The idea of increasing the minimum wage to $15 is not a novel one, it began in the early 2010s with the Fight for 15, a political movement in New York and California that demanded those states who have the highest costs of living in the nation should raise the state-level minimum wages to $15 per hour. After the movement made important advancements in their respective states, the Fight for 15 gained national traction when the most progressive Democrats in Congress began to propose the hike.
During his 2020 presidential campaign, then-frontrunner for the Democratic nomination Joe Biden promised to make the federal minimum wage a “living wage,” and although the first attempt to push it through Congress as an attachment to the latest stimulus package was unsuccessful, Democrats show no signs of stopping their efforts.
Minimum Wage = Living Wage?
Many proponents of the $15 minimum wage claim that the federal minimum wage was designed to be, and should be once more, a “living wage.” In his effort to pass the Fair Labor Standards Act, FDR said that, “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.” Those were strong words, but according to Forbes, the 25 cent minimum wage set by Roosevelt would only be $4.25 in today’s money, which is exponentially smaller than what researchers at MIT estimate to be the average living wage in America ($16.54).
In fact, despite what Roosevelt claimed then and Democrats claim today, the minimum wage in the US has never functioned as a living wage—it was not built to. The minimum wage was formed to prevent corporations from exploiting their workers by paying them unreasonably low wages, and that is how it functions today. This is made evident by the fact that 98% of all hourly workers already earn more than the minimum wage.
This is due to the nature of a labor market. Labor markets function similarly to normal markets, in that the market sets the price, or the wage, according to numerous factors, most notably the skill and experience needed to perform the job. Consumers, or laborers, can then choose whether to work for that price, or for another company that offers more. This economic back and forth usually forces firms to ensure wages are competitive. In practice, this market function is responsible for most laborers being paid more than the federal minimum wage.
The Effects of 15
A $15 wage may sound extremely desirable and deserved to workers who spend the majority of their week exerting all their effort to ensure that operations run smoothly at their job. Who doesn’t want more money? However, it is critical to analyze the effects of raising the minimum wage holistically before supporting or opposing it.
The Congressional Budget Office estimates that 1.4 million people would become jobless as a result of the wage increase, and that number could reach up to 3.7 million. This is because, contrary to popular belief, most businesses do not have vast cash reserves on hand to suddenly and exponentially raise their payroll. They will first respond by eliminating as many expendable jobs they can. These expendable jobs are usually held by the lowest skilled and lowest paid workers: the same workers the increase was ironically intending to help.
After cutting jobs that firms can afford to operate without, they will then look to other ways to pay the new minimum wage, which means they will raise the prices of the goods and services they offer. While some of the largest corporations, such as Walmart and Amazon, may be able to cough up the increase without raising consumer prices, most will not. Prices will continue to rise until $15 has the same purchasing power as $7.25, or whatever wage that company was initially paying. This economic fact raises an important question: since it will invariably and unnaturally accelerate inflation, is it worth it to more than double the minimum wage?
Some say it is, and many of them cite another result of the CBO’s report on the $15 proposal: that raising the minimum wage to $15 would lift almost a million people out of poverty. First, between 400,000 and 2 million more people would lose their jobs than those who would no longer be impoverished. Second, this shift from poverty to prosperity would be a temporary one at best. As mentioned, companies will pay for the wage increase by raising their prices. Since this economic shift takes time in the real world, it may take a few years for those prices to rise accordingly. Therefore, those people would be lifted out of poverty, and then dropped back into it once prices reach their new, higher level. The cost for this would be 1.4 million jobs.
In addition to the negative effects it would have on laborers, the minimum wage would also be a detriment to small businesses across the country. Small businesses do not have the resources that corporations do, and so they are forced into the same hiring choices that compel larger businesses to raise their prices, but with an added worry: extinction. Many small businesses are already struggling to stay open with the current federal and state minimum wages, a concern that has only been exacerbated during the pandemic. A federally mandated minimum wage would render it more difficult for small businesses to turn a profit.
So, We Shouldn’t Raise the Minimum Wage?
When debating whether the minimum wage should be altered, the book of Ecclesiastes offers some fitting wisdom: “For everything, there is a season, and a time for every activity.” The current minimum wage is not worth what it was when Congress set it in 2009. So, it is a valid argument to support adjusting the minimum wage for inflation. For most of its history, Congress adjusted the minimum wage to combat the effects of inflation, and according to that history, an adjustment is long overdue.
This does not mean that a $15 minimum wage is wrong for everyone. Some of the highest earning and most expensive states, like Florida, California, and New York, already have plans to increase their minimum wages to $15. Furthermore, 29 states have already raised their minimum wages past the federal $7.25. Allowing states to set their own minimum wages is critical, as the economic situation from state-to-state can vary wildly. $15 may be right for New York, but in some states, like Arkansas and West Virginia, the median wage for the entire state is not even $15, so setting the minimum wage above that level would be economically damaging.
$15 for everyone, everywhere may sound like a great deal; however, the United States is a huge country with a wide range of economic diversity. It can be the minimum in Florida, but be intolerable in Kentucky. There is no one-size-fits-all minimum wage, because there is not supposed to be. Adjust the minimum wage for inflation to approximately $8.84, so it keeps its worth, and then leave it to the states from there.
Louisville Political Review 