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Why a $15 minimum wage is 'not as risky as some people think'

Aarthi Swaminathan
·Reporter
·6 min read

Democrats are continuing to push for a gradual increase of the federal minimum wage to $15 from $7.25, and recent research is lending more credence to that argument.

“There's good evidence to say: ‘Yeah, this is a bold policy, but it's not as risky as some people think,’” Michael Reich, a minimum wage expert at the University of California, Berkeley, told Yahoo Finance.

Opponents of a $15 hike argue that the cost is too steep and the higher minimum would destroy jobs by hammering the businesses that are already struggling amid the pandemic-induced recession.

“If it cost businesses more to hire people,” Yahoo Finance columnist Rick Newman recently wrote, “they’ll hire fewer workers and invest more in labor-saving technology.”

While there would be labor costs for businesses to manage, research co-authored by Reich found that higher minimum wages did not generally lead to “adverse effects on employment, weekly hours or annual weeks worked” but did lead to “substantial declines in household and child poverty.”

Delores Leonard (R) helps her daughter Erin with her homework at the breakfast table before heading to work at a McDonald's Restaurant in Chicago, Illinois, September 25, 2014. Leonard, a single mother raising two daughters, has been working at McDonald's for seven years and has never made more than minimum wage.  Picture taken September 25, 2014.   REUTERS/Jim Young (UNITED STATES - Tags: BUSINESS EMPLOYMENT TPX IMAGES OF THE DAY)
Delores Leonard (R) helps her daughter Erin with her homework at the breakfast table before heading to work at a McDonald's Restaurant in Chicago, Illinois, September 25, 2014. (REUTERS/Jim Young)

A recent Congressional Budget Office (CBO) report revealed that a federal minimum wage increase to $15 by 2025 would benefit an estimated 27 million workers and lift 900,000 out of poverty (while increasing the deficit by $54 billion and eliminating 1.4 million jobs over four years).

"Eight out of 10 people live paycheck to paycheck," Joe Sanberg, a progressive activist and entrepreneur who served as a surrogate for Bernie Sanders’ 2020 presidential campaign, told Yahoo Finance. "We should organize around electing people to every level of political office — from city council, all the way to the president — who... will deliver for all of those eight out of 10 Americans."

Goldman Sachs analysts recently estimated that a federal minimum wage rise to $15 an hour would impact about 30% of workers in the U.S., most of whom have household incomes below $50,000.

UC Berkeley Center for Labor Research and Education found that $15 an hour would mean 23 million Americans would see a “direct boost” in pay, a boon to many amid the pandemic and resulting recession.

‘The U.S. economy is a consumer economy’

Americans overwhelmingly favor raising the federal minimum wage, which was last increased in 2009.

And many cities and states have enacted their own hikes, including Republican-leaning states like Florida. A majority of states in the U.S. now decree a minimum wage above $7.25.

(David Foster/Yahoo Finance)
More than 30 cities, along with 20 states, raises their minimum wages in the new year. (David Foster/Yahoo Finance)

"What's most compelling is logic that we can all embrace," Sanberg said. "The U.S. economy is a consumer economy — 70% of the economy is made up of consumption. But the problem we've had now for 40 years is that the people who need to buy things don't have any money... that's a very basic recipe that all of us who understand subtraction, addition, multiplication, division can recognize as a suboptimal recipe for growth."

If the status quo of $7.25 per hour as the federal minimum continues, he added, "there’s going to be a continuation of political upheaval until that game stops."

When adjusted for inflation, the minimum wage has not kept pace with the cost of living in many parts of the country. Meanwhile, corporate profits have surged since the last recession.

“The minimum wage was first put in place in the United States in 1938 during the Great Depression,” UC Berkeley Labor Center Chair Ken Jacobs told Yahoo Finance Live. “There was a real understanding at the time that an economic downturn is an important time to undergird and set a strong floor for wages, to keep families' income and to keep workers' incomes up and to stop a ruinous drive down.”

Consequently, Jacobs stressed, raising the minimum wage is a policy tool “you should have during economic downturns as a way to raise people up and get the economy going again. I think the argument for not doing it in this period is mistaken.”

While the minimum wage has multiplied by 18 times where it was in 1947, corporate profits have climbed 202 times, according to this chart by Deutsche Bank.
While the minimum wage has multiplied by 18 times where it was in 1947, corporate profits have climbed 202 times, according to this chart by Deutsche Bank.

I've done a lot of these cross-state comparisons’

Several cities in California, in particular, offer minimum wages higher than $15: Mountain View and Sunnyvale both mandate a minimum wage of $16.30.

A federal minimum wage hike to $15 would affect a large share of workers in the South, according to an analysis by the Economic Policy Institute (EPI), a left-leaning think tank.

“I've done a lot of these cross-state comparisons... [and] there's no room for compromise on having a regional differential,” Reich said. “You want to get above the poverty level in West Virginia or Alabama.”

The estimated affects of a $15 minimum wage by county. (Economic Policy Institute)
The estimated affects of a $15 minimum wage by county. (Economic Policy Institute)

But data aside, the decision then comes down to political will.

Goldman Sachs analysts noted that the “odds of an increase to $15 are low,” adding that a “compromise at $10-11, implemented no faster than $1 per year, appears to be more politically realistic.”

Nevertheless, new Senate Budget Committee Chairman Bernie Sanders (I-VT) has repeatedly indicated his intention to fight for $15 by 2025.

U.S. Democratic presidential candidate and U.S. Senator Bernie Sanders talks about minimum wage increases during a campaign town hall meeting in Bedford, New Hampshire January 22, 2016. REUTERS/Katherine Taylor
U.S. Democratic presidential candidate and U.S. Senator Bernie Sanders talks about minimum wage increases during a campaign town hall meeting in Bedford, New Hampshire January 22, 2016. REUTERS/Katherine Taylor

In response to the CBO report, Sanders stated that they “are never going to get 10 Republicans to increase the minimum wage through ‘regular order’” so the “only way to increase the minimum wage to $15 an hour now is to pass it with 51 votes through budget reconciliation.” (Budget reconciliation is a process that expedites the passage of certain types of spending legislation.)

“Joe Biden was selected with a 7 million person majority,” Robert Reich, who served as labor secretary under President Bill Clinton, told Yahoo Finance. “The House and the Senate... are both under the control of the Democrats. If we can't get a minimum wage increase through at the start of a new Democratic administration, when you have both houses of Congress under the control of Democrats, when can you?”

Correction: A previous version of this article listed the report on the effect of a minimum wage on 23 million Americans as affiliated with Institute for Research on Labor and Employment. This is incorrect. The report was by the UC Berkeley Center for Labor Research and Education. We regret the error.

Aarthi Swaminathan is a senior reporter for Yahoo Finance.

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