Working Americans have been fighting for a $15 minimum wage for nearly a decade. The current federal minimum wage has remained stagnant at $7.25 since 2009. Outside of Washington, D.C., the preposition has tremendous support, with 60% of 2020 voters approving increasing the minimum wage to $15 by 2026. But on Capitol Hill, the issue is fervently debated on economic and moral grounds.
The history behind the $15 minimum wage movement
The fight for a $15 minimum wage started in 2012, as predominantly Black and brown fast food workers led a strike against their low wages in Brooklyn. At the time, these strikes were the largest in American history, and have since become an international organization and movement called the Fight for $15.
The Fight for $15 has also paved the way for many other powerful movements. To many, like Missouri state assembly member Rasheen Aldridge, the Fight for $15 is inextricably linked to many other social movements, including the Black Lives Matter movement.
“You can’t really talk racial injustice without talking economic injustice,” Aldridge told The Guardian. “You can’t forget that those same Black workers still live in the same community that is oppressed, that is over-policed. Those workers were the same workers that also went to the streets of Ferguson, have protested, because they feel like Mike Brown could have been them, regardless if they was working at McDonald’s or if they was working at a healthcare facility.”
Now, Congresspeople like Senator Bernie Sanders (I-VT) are pushing for a gradually increasing minimum wage to $15 by 2025 via the $1.9 trillion COVID-19 aid package.
Arguments for and against a $15 minimum wage
Despite the success of Fight for $15 in urging politicians to raise the minimum wage, many Republican and Democrat officials are hesitant, if not adamantly opposed, to a $15 minimum wage. The arguments supporting raising the minimum wage are relatively straightforward – raising the minimum wage would help millions of low-wage workers escape financial distress, which many are experiencing more severely due to the COVID-19 pandemic. However, opponents argue that raising the minimum wage would actually cause a drastic increase in unemployment.
As Northwestern economics professor Sara Hernandez-Saborit explained, unemployment is the consequence of introducing a binding minimum wage into a perfectly competitive market. A minimum wage above the market equilibrium (where demand for workers by firms meets supply of workers in the labor market) will cause a surplus of workers. In this case, a surplus means that there are more workers willing and able to work at the new minimum wage than there are available positions by firms, which creates unemployment.
Increasing the minimum wage from one binding level, like the current $7.25, to an even higher level, like the proposed $15, would increase the surplus of workers significantly, thereby increasing unemployment significantly.
The nonpartisan Congressional Budget Office released a report showing that 1.3 million people who would otherwise have jobs would be unemployed if a $15 minimum wage was introduced. In other words, a $15 minimum wage would increase workers’ earnings, but this could be offset by the higher rates of unemployment.
However, Hernandez-Saborit explained that it may be beneficial to analyze other labor market structures. Some towns, she said, may be more reflective of a monopsony than a perfectly competitive market. A monopsony is a market in which one firm has most of the market power and can therefore hire the majority of workers. This could be the case for rural towns where one corporate retailer or factory employs the majority of the town’s employed population.
“We have evidence that, actually, the introduction of a minimum wage into these other labor market structures, like a monopsony labor market structure, can actually foster the level of employment,” Hernandez-Saborit said.
Another argument against raising the minimum wage is that the response by firms may nullify any benefits of an increased income for low-wage workers. As the CBO reports, increasing the minimum wage consequently reduces the firms’ income. In response, firms may pass this burden onto consumers, who may be minimum wage workers themselves, and raise prices. Hernandez-Saborit described the response of increasing prices as eroding the real income of minimum wage workers.
She countered, though, that firms may not be able to raise prices significantly, using the market of fast food chains to illustrate. There are many fast food chains, so no one chain has significant market power over another; as a result, these restaurants may not be able to raise prices very significantly. In this case, the rise in minimum wages might be greater than any increase in prices, creating a net benefit for the people.
This is likely what has led to the success of New York City’s $15 minimum wage for restaurant workers. Even though restaurants must pay their workers more, both revenue and employment are up in the restaurant industry. This is attributed to the fact that the restaurants did not have to raise their prices that much to compensate for the increased wages.
Another factor is that the restaurants did not lose many customers in response to the increased prices. An analysis done by the Federal Reserve Bank of Chicago explained this phenomenon; they demonstrated that increased minimum wages gives more spending power to low-wage workers, who can then afford to eat at these same restaurants. In other words, workers get more spending money, and restaurants get a broadened consumer base.
However, it is important to acknowledge that the state of New York has a strong economy overall, so businesses are in a better position to absorb any additional costs. Hernandez-Saborit also said that if a firm did have a lot of market power to increase their prices significantly without losing demand, the benefits of an increased wage would not outweigh the costs and the policy would be “completely useless” for low-wage workers.
Raising prices is not the only strategy available to firms. Firms can reduce the hours of training and/or workers’ benefits, reduce the wages of higher paid workers in the firm, increase the efficiency of their operations to increase production or just absorb the loss in profits themselves. Some firms may even save money from an increase in the minimum wage because employees may keep their jobs for longer, so there would be less costly turnover.
Essentially, there are many possible outcomes for increasing the minimum wage, which is why the issue is so contentiously debated. According to Hernandez-Saborit, politicians on both sides of the aisle are cherry-picking the facts and analyses that serve their position. This is why she finds some benefit in the strategy of gradually increasing the minimum wage. By gradually implementing this change, and even by just announcing it, economists can study firms’ responses and make educated decisions on the best ways to proceed.
Is the $15 minimum wage likely to survive through Congress?
The $15 minimum wage was added to the COVID-19 relief bill proposal through what is called budget reconciliation. Budget reconciliation is a legislative process that prohibits filibustering and allows bills to pass with a simple majority in the Senate instead of the 60 votes that are typically needed.
With two Democratic senators, Joe Manchin III (D-WV) and Jon Tester (D-MT), already expressing hesitancy toward the bill, Sanders will likely have trouble securing a federal $15 minimum wage. Along with debates over the economic repercussions, senators are arguing whether the $15 minimum wage is even allowed to be included in the reconciliation process due to procedural regulations.
Hernandez-Saborit thinks it’s unlikely the $15 minimum wage will pass right now. She explained that legislators would typically want to introduce these reforms when the economy is stable, not when the country is in a financial crisis like it is right now, even though workers need it now more than ever. She and other economists suggest that legislators develop other policies to help working families that might offer more long-term economic stability.
Despite the unlikelihood of passing a $15 minimum wage, Sanders and other Fight for $15 activists are not backing down.“The $7.25 an hour federal minimum wage is a starvation wage,” Sanders said when introducing the legislation to members of Congress. “No person in America can make it on $8, $10 or $12 an hour. In the United States of America, a job must lift workers out of poverty, not keep them in it. We must raise the minimum wage to a living wage – at least $15 an hour.”