The partisan lines on the minimum wage debate have hardened even more in recent weeks as Washington debates President Joe Biden’s proposal to gradually raise the federal minimum wage to $15 an hour from its current level of $7.25.
Chris Lu, President Obama’s former Deputy Secretary of Labor, gave an example of the pro-wage argument during an appearance Tuesday on Yahoo Finance live. “The truth of the matter is that when you look across not only economic studies but real-world studies,” he said, “a modest increase in the minimum wage does not lead to any kind of job loss.”
In a town hall on CNN Tuesday night Biden added a claim that the “vast majority” of economists have concluded that the impact of a wage increase on businesses “would be de minimis.”
The Congressional Budget Office, the non-partisan group of analysts who conduct research for Congress, laid published a report last week showing a more complicated reality than either side might like to admit. CBO found that a minimum wage increase has some benefits and some drawbacks: Biden’s plan would cost 1.4 million jobs but would also raise wages for 17 million people and lift 900,000 out of poverty, it found.
‘Minimal employment effects’
Democrats sometimes acknowledge the potential job losses, but other times cite studies they say show there's little to no downside.
A 2019 report from the Washington Center for Equitable Growth – a group that was run by Heather Boushey, who now sits on Biden’s Council of Economic Advisors – found that a wage increase has “minimal employment effects.”
The House Committee on Education and Labor has also released research to support raising the wage. There is even a study of all the different studies that proponents of a wage increase say shows little correlation between wage increases and employment.
Other studies have found that increases at the local level – where many states already have minimum wages well above the federal level – have minimal impacts to business. (Twenty states passed legislation in November to increase their minimum wage in 2021.)
“We've had a minimum wage in this country for almost 80, 90 years,” Lu said. But “every time it's raised, people say it's going to lead to job loss. It hasn't.”
A detailed fact check from the Washington Post looked at Biden's claim that "the whole economy rises" with a wage increase. The Post dinged him a bit, saying he “should acknowledge that a rising tide may not lift all boats.”
Advocates for a minimum wage increase are set to get bipartisan backing with the announcement from Republican Senators Mitt Romney and Tom Cotton that they would be introducing a bill to raise the minimum wage, while at the same time strengthening the E-Verify system to stop businesses from hiring illegal immigrants. A spokesperson for Romney confirmed to Yahoo Finance that details of the bill will be released next week.
The other side: ‘economic distortions’
On the other side of the debate, there is also a robust research demonstrating the negative impact a wage increase would have on employment levels.
David Neumark and William Wascher, two researchers often cited on this side of the dispute, published a meta-study in 2006 of many different minimum wage studies. It found that a minimum wage increase can bring about ”economic distortions” leading to “unintended adverse consequences for the employment opportunities of low-skilled workers.”
That report leaves aside the impacts of a minimum wage increase on other areas like the “distributions of wages, employment, incomes, and human capital accumulation.”
A more recent study from the Employment Policies Institute, a conservative group associated with the restaurant industry, pegs the number of jobs that could be lost at 2 million, while the “restaurant and bar industry will account for 45% of total job losses.” (This research organization shouldn't be confused with the Economic Policy Institute, a liberal-leaning group that has its own research which comes to the opposite conclusion of its near namesake.)
Former Federal Reserve Governor Randall Kroszner, who served in the George W. Bush administration, noted Tuesday that the impact of a wage increase could depend on where you live. In some more rural areas of the country with a lower cost of living, “where wages tend to be lower, it's likely to have much more of an impact,” he told Yahoo Finance.
“I think right now we really want to get people back to work and requiring a very high minimum wage, at least in some parts of the country, may make that more difficult,” Kroszner said.
‘A debatable issue’
Popular support for raising the minimum wage remains high. A recent Quinnipiac poll found 61% of Americans support an effort to hike it to $15 an hour. A survey from Yahoo Finance and the Harris Poll found that 77% of respondents supported raising the minimum wage somewhere above $10 an hour.
Another survey of small-business owners found that 57% of respondents said a minimum wage increase would have no impact on their business.
In the end, the fate of the idea for now may rest on Senate rules. The House of Representatives appears set to include a minimum wage increase as part of its larger stimulus package it will send to the Senate as early as next week.
Once it arrives, Senators Kyrsten Sinema and Joe Manchin are two crucial Democrats whose votes will be needed. Both have expressed skepticism about including the a wage increase, mostly because of Senate rules.
Sen. Manchin (D., W.V.) has reportedly privately informed Biden that he might not be on board with including the minimum wage in the budget package. Sinema was more blunt, telling Politico recently that the "minimum wage provision is not appropriate for the reconciliation process. It is not a budget item. And it shouldn't be in there."
In any case, Biden has signaled he'll keep pushing on a minimum wage and firmly believes that ultimately a wage increase is a good thing for both workers and business.
He also said Tuesday he understands why some small-business owners are concerned about certain ill effects. “That's a debatable issue,” Biden said.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.