$15 Per Hour Isn't What Matters

July 22, 2019

 

The House of Representatives passed the Raise the Wage Act Thursday, a bill mandating the national minimum wage increase from its current level of $7.25 to $15 per hour. This bill is a huge step in the right direction; and if passed, will be crowning achievement for workers at the bottom of the income spectrum. But the best part of the legislation isn't the pay increase. The best part, and what may have a shot at taking a bite out of poverty and lead the US one step closer to federally guaranteeing a living wage, is the provision which indexes the minimum wage to average wage growth.

 

Now I’m sure the more jaded among you are thinking, “Who cares? Wage growth has been nonexistent for 40 years; what we need is the minimum wage indexed to consumer prices.” And I agree. A more robust measure would be pegging the $15 per hour wage to CPI so worker purchasing power doesn’t erode as goods and services increase around them. But because many republicans in Congress believe any increase in the minimum wage leads to drastic reductions in employment, indexing the minimum wage to CPI would have zero chance of passing the Senate — since doing so would require annual upward adjustments for inflation. Recognizing this reality, the House determined that indexing the minimum wage to average wage growth, which is less volatile than changes in consumer prices, is something senate republicans may be more willing to stomach. 

 

And we, as voters, must be careful not to conflate “wages haven’t increased in forty years” with “real wages haven’t increased in forty years.” Because wages have increased, they just haven’t kept up with inflation. So if Congress can provide a decent level of economic security to low wage workers by guaranteeing the minimum wage keeps up with average wage growth, then the Raise the Wage Act is far superior to its predecessors—regardless of per hour compensation. 

 

And frankly, this shouldn’t be a partisan issue. If republicans are concerned with middle income wages the way they say they are, increasing the minimum wage and indexing it to some inflation metric would be great for their constituents and their local economy. It would bring many families above the poverty line, as well as provide bottom up wage pressure so pay increases at the bottom of the income spectrum trickle up to low-middle and middle income earners. Additionally, given today's low inflation, this measure wouldn't lead to runaway inflation the way some inflation hawks believe it would. If anything it may help the Fed reach its 2% inflation target, something the Fed has failed to do since establishing the target 10 years ago.  

 

So what's the problem? Why isn’t this policy a no brainer?

 

The issue is a recent report from the Congressional Budget Office (CBO) which projected that if the minimum wage was gradually increased to $15 an hour by 2025, 17 million workers would receive direct pay increases, another 10 million could see pay increases, but 1.3 million people will lose their jobs as employers face increased labor costs. And the 1.3 million number is what has many policy makers nervous. But the CBO simulated the effects of increasing the minimum wage to $10 and $12 as well. For the $10 model, 1.5 million workers would receive wage increases, 2 million would see possible increases, and job losses from this policy would come in around 100,000. For the $12 model, 5 million workers would see direct wage increases, 6 million possible increases, but 300,000 workers would lose their jobs. And the number of people brought out of poverty for the $15, $12, and $10 models are 1.3 million, 400,000, and 0 respectively. So as you can see, if a deal is made on the minimum wage, it's likely job losses will be in the hundreds of thousands, a reality that has left many in Congress avoiding the issue altogether, tethered to the idea that one job loss in this economy is one too many.

 

So now the bill goes to the Senate where it will be met by a republican majority who most likely won't bring it up for debate, much less a vote. But if they do, and the Senate drafts its own minimum wage bill, it certainly won’t include a minimum wage anywhere near $15 an hour. But my point is that per hour compensation shouldn’t be how we determine whether this policy is a win for workers. A pay increase is important to be sure, but a one off increase in the minimum wage isn't nearly as important as establishing a minimum wage that retains its value over time — 10, 12, or 15 dollars an hour is fine for 2019, but it won’t be long before workers are back at $7.25 in terms of real purchasing power. 

 

So as this issue is debated in local town halls, and nationally in the halls of Congress, we should see to it that low income workers aren't punished simply due to the passage of time. If Congress fails to act on the minimum wage and $7.25 remains the law of the land, the least they could do is ensure that $7.25 today equals $7.25 tomorrow.

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