4 Important Things to Know About Raising the Minimum Wage to $15 an Hour
President Joe Biden has proposed a federal minimum wage increase to $15 per hour, tying it directly to a $1.9 trillion COVID-19 relief package. Arguments abound for and against the $15 minimum wage increase: some data indicate keeping wages low are particularly harmful to non-white workers, especially women of color, who make up a disproportionate share of low-wage workers. Other data suggest it would reduce business income, raise prices, and reduce the nation’s output slightly through the reduction in employment and a corresponding decline in the nation’s stock of capital. The current federal minimum wage is $7.25 per hour.
There is no black and white answer. To help you better understand the subtle nuances of the minimum wage issue, let’s turn to our faculty experts on economics, policy, and employment equity:
Increasing the federal minimum wage during an economic downturn may be less harmful than business owners fear.
New research by Arindrajit Dube, professor of economics at UMass Amherst, and Doruk Cengiz, data scientist at OM Partners and UMass Amherst economics alum ‘19PhD, finds no indication that minimum wage has a negative effect on the unemployment rate, on the labor force participation, or on the labor market transitions.
“Furthermore, we detect no employment or participation responses even for sub-groups that are likely to have a high extensive margin labor supply elasticity—such as teens, older workers, or single mothers,” they wrote. “Overall, these findings provide little evidence for changing search effort in response to a minimum wage increase.”
Their study, co-authored with economists from University College London, was published by the Quarterly Journal of Economics.
In fact, wage hikes at the state level found essentially no effect on payrolls.
A 2019 study also co-authored by Dube and Cengiz examined 138 minimum-wage hikes at the state level. They found “that the overall number of low-wage jobs remained essentially unchanged over the five years following the increase.” Further, they found that by placing the minimum wage as high as 59% of the median wage there would still be minimal effect on employment.
“Can we say with full assurance what the employment impact will be? No,” Dube told The Atlantic. “But our evidence base has been fast growing in the past five years, and ambitious minimum-wage policies—they haven’t been having a clear impact on low-wage employment so far.”
$15 an hour could raise people above the poverty line with these important caveats.
President Biden said in a Jan. 22 speech that “Fifteen dollars gets people above the poverty line.” According to Jeannette Wicks-Lim, associate research professor at the UMass Amherst Political Economy Research Institute, this is true but it’s conditional.
"So as a labor standard -- yes, a $15 minimum wage could be accurately described as getting most families over the poverty line if they are working full-time year round," said Wicks-Lim. Many workers are employed part-time, or seasonally, or are supporting large families, and situations vary by location as per the cost of living.
But while raising people above the poverty line may mean they have "escaped severe deprivation," she said, it does necessarily mean "they are able to sustain a decent living standard."
Economic equality is a major issue for America’s fastest growing ethnic minority group.
The Hispanic/Latino community is poised to become the largest ethnic minority group in the US. A recent study by the UMass Amherst Center for Employment Equity and UCLA Latino Policy & Politics Initiative found that leading up to the 2020 presidential election, the economy was of top concern.
It found that Hispanic/Latinos in major electoral states like Arizona, Florida, and Texas are the racial or ethnic group with the largest share of workers earning less than $15 an hour; receive lower hourly wages than white workers, even in similar jobs with similar levels of education; and have been disproportionately affected by the COVID-19 pandemic.
The top policy recommendation to come out of the study was to “increase minimum wage to at least $15 an hour nationally, automatically rising with future inflation, and eliminate exclusions of minimum wage regulations for domestic, farm and tipped workers.”
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