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A $15 minimum wage is the wrong target

Rick Newman
·Senior Columnist
·5 min read

Wouldn’t it be great if you could get paid more, with no downside to anybody? That’s the Bernie Sanders fantasy: More than doubling the minimum wage and making everybody better off.

Sanders and other liberal Democrats are pushing to raise the minimum wage from $7.25 per hour to $15, with increases phased in over several years. President Biden supports the plan and wants it included in the huge coronavirus relief Congress is pulling together. But there are several obstacles to a $15 minimum wage passing either as part of the relief bill or a standalone measure.

A recent Congressional Budget Office analysis helps explain why. A $15 minimum wage would lift 900,000 people out of poverty, but also kill 1.4 million jobs. The logic is intuitive. If it cost businesses more to hire people, they’ll hire fewer workers and invest more in labor-saving technology. There’s a lot of research on this, including real-world data from high-wage areas such as Seattle. Sharp hikes in the minimum wage make some people better off but harm others, which is a good way to characterize bad policy.

[Read more: Biden might get an $11 minimum wage—but not $15]

There may be a Goldilocks solution, however. A CBO study from 2019 looked at the likely consequences of three different minimum wage hikes: to $10, $12 and $15. The forecast for a $15 wage then was similar to the latest analysis. About 17 million workers would see wage gains averaging 11.8%, but higher labor costs would kill 1.3 million jobs.

Strike for justice protesters are seen outside a McDonald's Monday, July 20, 2020, in Milwaukee. (AP Photo/Morry Gash)
Strike for justice protesters are seen outside a McDonald's Monday, July 20, 2020, in Milwaukee. (AP Photo/Morry Gash)

Hiking the wage to $12 would boost wages for 5 million workers by 9%, while killing about 300,000 jobs. Boosting it to $10 would raise wages for about 1.5 million workers by about 5.4%, with essentially no effect on overall employment.

So if you start with the principle of first do no harm, the CBO data suggests raising the minimum wage to $10 per hour would make some people marginally better off, without killing any jobs. A $10 wage may not sound very satisfying to Sanders and the other 15ers, but it’s still 38% higher than the current minimum. Who would turn down a 38% pay raise, even if it phases in at, say, 8% or 10% per year?

A $10 minimum might also be politically feasible, which a $15 minimum probably is not. Democrats have just a one-vote majority in the Senate, which means every single one of them would have to back a minimum wage hike for it to pass. Sen. Joe Manchin (D., W.V.) has already said he doesn’t support a $15 minimum because it would be too onerous for employers in his state, where living costs are below average. A handful of Democrats are mum on the $15 minimum, suggesting the measure might only get 45 votes or so in the Senate.

Manchin said he might support an $11 minimum, so maybe that’s the most reasonable target. It may not be the best idea to raise the federal minimum in the midst of a downturn, when low-wage workers have lost jobs at a much higher rate than higher-paid ones. Congress could deal with that by phasing in the new wage and delaying the first step-up to some future date, or pegging it to a trigger such as the unemployment rate falling to a particular level.

[Read more: Don’t count on Biden hiking the minimum wage]

To their credit, Democrats pushing for the $15 wage floor also want automatic annual adjustments so the minimum rises along with inflation and living costs, the way Social Security payments adjust upward every year. That would negate the need for Congressional fights over raising the minimum wage every few years and the erosion of the minimum wage in real terms.

Under the $15 proposal, once the wage floor reached $15 in 2025, it would then adjust upward every year by the same amount as median hourly wages change. That would be a welcome improvement. If the federal minimum ended up being lower than $15, the annual change could also be set to rise by a percentage point or two (or any amount) more than the median wage, as a catch-up mechanism. So if Congress settled on a compromise wage such as $11, there could also be automatic increases meant to help minimum-wage workers gain on inflation over time.

David Foster/Yahoo Finance
David Foster/Yahoo Finance

Any minimum-wake hike will be difficult to pass because of Senate rules. Democrats can pass some legislation with a simple majority, but it must be directly related to spending or revenue. Minimum wage legislation probably doesn’t meet that requirement. That means it would probably have to pass with the 60-vote majority needed to overcome a filibuster, and there probably aren’t 10 Republicans willing to raise the wage to any level Democrats would accept.

Republicans point out that states and cities have the right to raise the minimum wage above the federal level, as many have done. They also have good ammunition against a $15 minimum because of the number of jobs it would cost. Biden knows all this, and he might end up comfortable with a minimum wage of $10 or $11. Democrats should be careful not to characterize that as a defeat.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.

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