What’s the Deal with a $15 Minimum Wage?

by Dr. Tracy Miller

Minimum Wage
Minimum Wage
The Center For Vision & Values
The Center For Vision & Values

Grove City, PA -(Ammoland.com)- Arguing that no full-time worker should be paid so little as to live in poverty, Bernie Sanders supports increasing the minimum wage to $15 per hour by 2020.

This is part of his plan for reducing income inequality in the United States. Unfortunately, raising the minimum wage, especially by such a large amount, will reduce the incomes of many low-wage workers by making fewer jobs available.

To be sure, an increase in the minimum wage does benefit many workers. It benefits not only workers who were paid below the new minimum, but also skilled workers who are already earning wages above the minimum. Proponents concede that some workers may lose their jobs, but argue that their losses will be more than offset by wage gains for most low-wage workers.

That said, there is also no question that many low-wage workers will have a harder time finding jobs if the minimum wage is increased from its current level of $7.25 to $15.00 per hour. The goal of business owners is to make a profit, and to maximize profit they must charge a high enough price to cover the cost of producing each unit of output. If wages increase without a comparable increase in workers’ productivity and firms continue to charge the same price as before, they will find that some of the output they sold when costs were lower is no longer profitable to sell. Thus prices are likely to increase. But if firms increase prices, they can expect to sell less of their product than before.

Proponents of a minimum-wage increase argue that it will lower turnover and motivate workers to be more productive. This may happen in some cases, but if raising wages increases productivity and lowers turnover by enough to enable firms to earn as much or more profit as they did paying lower wages, firms will eventually figure out that it is in their interest to raise wages regardless of whether a minimum-wage increase requires them to do so.

For most minimum-wage workers, it is not likely that productivity will double if the minimum wage is doubled. In firms where productivity does not increase as much as the minimum wage increases, fewer workers are likely to be hired or retained. Recent research, published by American Action Forum, estimates that increasing the federal minimum wage to $15 would lower employment by between 3.3 million and 16.8 million workers.

Some employers, such as Walmart, have politically supported an increase in the minimum wage, arguing that a higher minimum wage, by raising workers’ purchasing power, would increase the demand for their products, thus making it possible for them to employ more workers. Raising workers pay without increasing their productivity, however, will not increase overall purchasing power in the economy. If workers as a group earn more, then owners of firms will earn less. This will change the distribution of income and likely change the mix of goods and services demanded. Firms experiencing increased demand will hire additional workers, but those experiencing reduced demand will reduce the number of workers they employ. With no increase in the aggregate demand for labor and higher average labor costs, the total number of workers employed is likely to decrease.

Unions usually provide strong political support for minimum-wage increases, in spite of the fact that most unionized workers earn well above the minimum wage. This is because when faced with a higher minimum wage, firms often will replace unskilled workers earning close to the minimum with some combination of machinery, technology, and skilled workers. If firms switch to more mechanized production methods, they will need more skilled workers, who may be unionized, to operate the machines.

Most workers earning the minimum wage are not living in poverty. The Congressional Budget Office estimates that 35 percent of minimum-wage workers are from families earning incomes greater than three times the federal poverty level. Only about 20 percent of workers earning less than $11.50 per hour are from families with incomes below the poverty level.

The lost income of those who become unemployed due to an increase in the minimum wage may be less than the increased earnings of those who continue to be employed. Nevertheless, being unemployed can have a much more harmful impact on a person’s wellbeing than earning a low wage. Work experience is critical to the long-term success of workers from disadvantaged backgrounds. For workers with a high school education or less, one of the best ways to get skills and develop good work habits is through training provided by an employer. Providing training is costly, however, so that the higher the wage, the less likely an employer will risk providing training to an unproven worker. With a lower minimum wage, more firms could afford to incur the cost of on-the-job training, so it would be easier for workers with limited education and experience to find jobs and gain marketable skills that would enable them to move up the ladder to better paying jobs in the future.

Dr. Tracy C. Miller
Dr. Tracy C. Miller

While more than doubling the minimum wage makes for a great political stump speech, the realities of such a move could prove to be not so great for the American worker.

About the Author:

Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.

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justtryit
justtryit
5 years ago

How come its only “river crossers & cotton-pickers” I see in the photo?

ThinkingAhead
ThinkingAhead
5 years ago

$15 an hour minimum wage, bah! Increase the value of the dollar not lower it. This has been done time and time again. It was seeded by the Blue states merely to get the people behind them. It does nothing more than lower the value of retirement which we all work had to look forward to. Also, it helps those areas which are not going to make payroll with retirement benefits the unions have pushed. Saves bankrupt cities by devaluing the dollar. As with all minimum wage increases in history have done. Short term effects is to give a few… Read more »

Wild Bill
Wild Bill
5 years ago
Reply to  ThinkingAhead

Nixon’s taking the U.S. off of the gold standard is when this decline in purchasing power really began. I believe that it was 1971, and gasoline was about thirty cents per gallon, Then in early 1972 the middle eastern oil producers figured out that the dollar was no longer backed by gold (or anything else) and then they wanted more dollars per barrel of oil to make up for not being backed by anything. So the price of gasoline went up to fifty cents, plus or minus. Now, the government can say a dollar is worth what ever they say… Read more »

Naturalist
Naturalist
5 years ago

Higher Minimum Wage = Higher Unemployment.,More layoffs. More people out of work due to the closure of businesses. Less jobs. More people on welfare, food stamps and more free phones and internet. More homeless. More automation. Higher product prices.

Janek
Janek
5 years ago

If McDonalds is paying $15 an hour does that guarantee you won’t get screwed at the drive thru?

oldshooter
oldshooter
5 years ago
Reply to  Janek

Hmmmnnn…I believe McDonald’s only sells food. The price for screwing is probably somewhat higher, and probably isn’t available at the drive thru. But what do I know, especially about the going rate for that kind of service, having been married for the past 50 years I’m probably quite out of touch with services “on the street.”

Glennon
Glennon
5 years ago

I started working at the age of nine selling newspapers on a busy city corner in rush hour traffic. I earned a tiny amount for every newspaper that I sold, but it felt like a fortune to this poor inner city kid. I then took a part times job at the age of ten at a neighborhood drug store making deliveries, stocking, cleaning, etc for twelve dollars a week. I thought they I was rolling in the bucks. Then in high school I worked at the small market down the alley corner from the flat that we lived in and… Read more »

oldshooter
oldshooter
5 years ago

The idea that raising the minimum wage will help low wage earners is patently ridiculous to anyone who has ever worked in such positions and gotten their first raise or two. If the minimum wage is 7.25 and it goes up to 9.25 say, almost no one who is making between the old minimum and 9.25 will get a raise. There is simply no incentive for management to give them a raise and much incentive to avoid it; they may even get laid off! Thus, anyone who worked hard to get himself above the minimum wage level will be HURT,… Read more »

Eric_CA
Eric_CA
5 years ago
Reply to  oldshooter

Oldshooter, I agree that the minimum wage was never meant to be “living wage.” I remember when I first started working. Minimum wage was less than $3.00 an hour. I learned work ethics. I learned the importance of an education and to strive for a better job and not get stuck in a dead end job for the rest of my life. And I’ll tell you, it worked.

Minimum wage should motivate people to get ahead.

Jesse Scott
Jesse Scott
5 years ago

You got only one guarantee when you popped out of mommy…that you would die one day. Rest is up to you, not the government.

Jim
Jim
5 years ago

As Jacob said, the real losers will be all of the folks on a fixed income. Artificially raising the minimum wage will raise the cost of living, hurting those on Social Security and Disability. While the minimum wage will double, increases in Social Security may go up by 1%.

The cost of these increases will never be officially disclosed. The books will be “cooked” just like the cost of living index and employment figures published to make the current administration look good. Those in power only care about their position and getting reelected.

DCarr
DCarr
5 years ago

What I’m not hearing about is “are they going to raise my pay” the working middle class. I worked and paid my way through college and still paying back student loans! If these slackers who have no drive to better themselves and just want hand outs can get a 50% increase then doesn’t the working middle class get one as well! It’s de-valuing my hard work for trying to better myself by going to college. I think it BS!!

Jim Macklin
Jim Macklin
5 years ago

Prior to WWII the US Dollar was worth 100 cents. WWII cost so much money that the war was fought on borrowed money, WAR BONDS. The USA had gold and silver. After WWII the repayment began and social programs increased. In the mid 50s the dollar was worth about 55 cents. The government increased welfare about a dozen times between 1964 and 1975 and to streamline budget approval, Congress put spending on automatic with the 1974 Budget Reform Act. Today the dollar is worth about 2 cents compared to the pre-WWII dollar. So $15.00/ hour is just 30 ¢ in… Read more »

Jacob M. Opperman
Jacob M. Opperman
5 years ago

Yep go ahead and raise the minimum wage to $15 an hour and guess what is going to happen every thing else is going to raise to and everyone will be right back to where they have start except the people who are on a fixed income from Social Security who when the government deems they do not deserve a raise in that income and if we do get one it is a poultry maybe, just maybe a 3%. So go ahead Bernie raise the wage, make the older folks have to work longer and what about the folks who… Read more »

Jim Macklin
Jim Macklin
5 years ago

Don’t forget that robots can make a hamburger pattie, cook it, put it on a bun and add condiments. At some point a robot is much less expensive than a $15/hour plus healthcare, Social Security and other fringes. Robots don’t ask for time off, they don’t know what a holiday means, and they can be more sterile and work faster. McDonald’s has almost robotized hamburger prep, now. A human gets a pre-made pattie and puts it on teh grill for a set time, then a worker pushes buttons to apply the sauces. A robot can do all that now. Cares… Read more »

DTC
DTC
5 years ago

I agree with you, for whatever the ‘right’ amount of minimum wage is – and it is not $15, but it is also not $7.25, then they should set it and then index it AND social security to an inflation based index that makes the adjustment every 2 to 5 years, take congressional debates out of the conversation. This shouldn’t even be a debate worth having in the presidential debate. The only reason it is coming up is that the minimum wage never increases without congress, and its gotten out of whack with regular prices. A 45 hr work week… Read more »

DTC
DTC
5 years ago

The answer is somewhere in between. $7.25 is not a living wage, and the data in the article is stated in such a way that it avoids that because it refers to families with multiple earners in the family. $15 is way too high. Why can’t we have a rational discussion of what makes sense. It was $3.35/hr some time around 1986 (I know, that is what I earned at the time). I think that equivalent in today’s $ is around $10/hr (not sure what the exact number is), so why not raise it to that, and then index it… Read more »

Eric_CA
Eric_CA
5 years ago
Reply to  DTC

DTC, The minimum wage is not suppose to be a “living wage.” It’s an entry level job. However, I do agree with indexing it to inflation. Unfortunately, increasing the minimum wage is inflationary. Maybe a better solution is to reduce welfare benefits.