Wildfires aren’t the only things spreading rapidly in this California drought; the desire to increase minimum wages along the West Coast apparently burns equally as hot. California’s minimum wage recently increased to $9 an hour giving Golden State workers the fourth highest minimum wage in the US behind DC, Washington, and Oregon. San Diego’s city council recently voted to increase their minimum wage to $11.50 by 2017, and the Los Angeles Workers Assembly and other activists are planning to draft a ballot that would boost minimum wages in LA to $15 an hour. Seattle has already approved a measure that will eventually raise its minimum wage to $15 an hour, and San Francisco, Oakland, and Berkeley are considering similar measures.
It’s not just those living on America’s left coast that want to see minimum wages rise; roughly three quarters of Americans support a federal increase from its current $7.25 to $10.10 an hour. President Obama has emphasized the need to increase minimum wages nationwide as a means of fighting poverty and promoting growth among the middle class, and as many as 34 states could vote on minimum wage increases this year. Given the recent groundswell of enthusiasm for minimum wage increases, it seems an appropriate time to discuss some of the key questions and trade-offs involved.
First, how many people currently earn the minimum wage? According to the BLS (Bureau of Labor Statistics), in 2013 about 3.3 million workers, or 2.4% of all workers in the US earned the federal minimum wage of $7.25 or less*. But 21 states and DC had minimum wages higher than the federal level in 2013. When including workers who earned a higher minimum wage along with those making the federal level, the CBO (Congressional Budget Office) estimates that 5.5 million, or about 4% of all workers earned within 25 cents of the minimum wage in 2013.
Secondly, who makes up the 2.4% of workers earning the federal minimum wage or less? According to the BLS, about one quarter were teenagers, half were under 25, about 70% were under 40, two thirds were never married, and about two thirds worked part-time. These figures only cover those making at or below the current federal minimum wage level of $7.25. If we expand to cover those making the proposed level of $10.10 per hour or less, both the percentage of workers earning at or below that level and the average age of those workers increase somewhat.
Speaking of the proposed federal minimum wage level of $10.10 per hour, what is likely to be the result of such a raise? The CBO estimates that about 16.5 million Americans would see their wages rise if the $10.10 level is implemented in 2016, boosting earnings by 31 billion dollars, but only 19% of that 31 billion would go to families making below the federal poverty threshold while 29% of the 31 billion would go to families making at least three times the federal poverty line. This highlights the fact that raising the minimum wage is not a well-targeted tool for alleviating poverty, and in many cases, it will mean nicer clothes for a teenager or college student from a middle or upper class family. The CBO also estimates that about 500,000 jobs would be lost due to the wage increase.
It is true that most low-wage workers will experience a rise in income if the federal minimum wage level is raised. But it is also true that much of the increased income would accrue to families who are relatively well off, and raising the minimum wage sharply above its current level is likely to reduce employment among young and low-skill workers, i.e. those with skills and experience that are only marginally employable at today’s minimum wage rates. Also keep in mind that the proposed federal minimum wage raise from $7.25 to $10.10 represents only a 39% increase; the proposed raise from $9 to $15 in parts of California represents a 67% increase, meaning that a larger percentage of low-wage jobs can be expected to disappear.
Economic research is tricky business, but the literature consistently shows that getting and keeping a job is key to upward mobility. So while it’s probably fair to assess that most low-wage workers will benefit from a minimum wage increase, we must also acknowledge that there is a tradeoff involved, in this case, reduced employment opportunities for the most vulnerable among our workforce. And that is something certainly worth considering.
