An uncomfortable minimum wage column
President Joe Biden is pushing to increase the federal minimum wage to $15 as part of another COVID-19 relief package. Republicans have sounded the alarm, and Democrats don’t see why their political counterparts refuse to see the wage hike as an unmitigated good. Like most policy issues, it’s more complicated than the partisan spin makes it sound.
The wage hike will not result in $38 burritos at Taco Bell. The restaurant chain confirmed as much to Politifact, “At our company-owned restaurants in New York City, where the minimum wage is $15 an hour, our Bean Burrito is $1.89 plus tax and Crunchwrap Supreme is $4.49 plus tax.” Rest easy. Mandatory wage increases do not necessarily result in massively expensive heartburn delivery mechanisms.
The minimum wage does have a practical impact on hiring decisions. It is the lowest entry point to engage labor. If an employer needs someone to sweep and mop the floors, it might be worth hiring someone at $7.25 an hour for the task. At $15 dollars an hour, the manager might allocate the task across several existing employees and not hire anyone. Their workload goes up, but it’s not clear that pay would follow, especially if those workers are already above the minimum wage threshold. That may not be a problem for a large retailer like Amazon that already pays higher wages, but it definitely forces tough choices for smaller employers.
The nonpartisan Congressional Budget Office (CBO) has studied various minimum wage proposals, and both Democrats and Republicans like to cherry pick the information that fits their respective narratives. Yes, the CBO does find that “1.3 million workers who would otherwise be employed would be jobless” under a $15 minimum wage. It also concludes “the $15 option would increase the wages of 17 million workers whose wages would otherwise be below $15 per hour.” The report determines that overall family income would slightly decrease.
It’s almost as if economic realities don’t respond conveniently to political narratives.
Hiking the minimum wage does mean higher pay for millions of workers, but it also means that up to 3.7 million (the CBO’s high-end estimate) might lose their jobs. That’s the real tradeoff we’re talking about. Supporters of a higher minimum wage should stop acting like it’s an unmitigated good, and opponents ought to be honest that it would absolutely increase incomes for some lower-income workers.
But what about the machines?
We’ve all seen the memes of various automated ordering kiosks being the “new” $15 minimum wage employee. Saavy businesses will always look for more efficient operational choices, but that doesn’t always hurt workers. A 2017 McKinsey & Company study found, “employment and productivity both grew in 95 percent of rolling three-year periods and 100 percent of rolling 10-year periods since 1960.” In other words, technological advances across American history haven’t meant fewer jobs. Amazon’s Alexa is nice, but she can’t fill the shoes of the average Chick-fil-A employee with a smile on her face.
While the minimum wage is billed as an effort to address poverty, income inequality is the real problem. According to CBO, average household income after federal taxes and means-tested federal program transfers was $35,900 for the lowest 20% and $229,700 for the highest. That’s a big difference, and it expands rapidly towards the opposing ends of the income spectrum.
It might seem strange for a conservative to discuss income inequality, but it’s essential to protect a free marketplace. Absolute wage equality would remove powerful incentives to work hard and take economic risks, but being mindful about corporate income distribution is smart politics. Members of Congress who champion free markets should encourage. When companies take care of their workers in terms of benefits and do what they can to increase take home pay, workers thrive, their families are better off, and the average worker has an incentive to defend an employer against government encroachment.
Progressives tend to take a more skeptical view that corporations will almost always prioritize shareholders over employees. When businesses don’t focus sufficiently on workers, their lives are more difficult. When laborers see the handful of folks at the top of the organization chart with fat pockets, politicians have a far easier time promoting themselves as champions of the little guy with a government cudgel.
Thinking of the minimum wage in that context puts some options on the table. If the pain point is mostly for small businesses, why not offset the minimum wage increase with a corresponding tax reduction for the entities most economically harmed by it? If the logic is that the increase makes lower-income Americans less reliant on government social services, it’s a tradeoff that might make sense. Better yet, simplify and expand the Earned Income Tax Credit and let most average families keep more of the money they already earn.
The uncomfortable reality is that increasing the minimum wage to $15 isn’t as impactful at creating entry-level jobs, moving people out of poverty, or helping families thrive as we’d like it to be. If we want to make real progress on those issues, we must expect more from our elected employees in Congress who make a lot more than the bare minimum.
Cameron Smith is CEO of the Triptych Foundation, a 501(c)(3) non-profit. The Triptych Foundation promotes a virtuous society through investments in socially impactful media and business. He was recently executive director of the Republican Policy Committee in the United States House of Representatives. You can reach him at firstname.lastname@example.org.