At the Expense of Millions
Esperanza Lee
Woodbury High School
Woodbury, MN
Raising the federal minimum wage to $15/hour will significantly decrease low-wage employment as businesses incorporate cost-effective alternatives. Although doubling the minimum wage benefits workers in the short term, it endangers millions of low-wage jobs.
In 2014, the Congressional Budget Office (CBO) estimated that increasing the current minimum wage by merely $2.85 would cost up to 1 million jobs. Among low-wage workers, earnings could increase by $31 billion, but only $5 billion – less than 20% – would go to those with incomes below the poverty threshold.[1] In a separate study, William Even and David Macpherson utilized 25 years of data to compare employment changes between low-wage and high-wage county-industry pairs in California. According to a model created from the data, 400,000 workers in California alone could lose their jobs with the $15/hour minimum wage.[2]
The results from these studies indicate that millions of jobs nationwide would be cut by increasing the federal minimum wage to $15/hour, resulting in significant income losses among low-wage workers. As Nobel laureate Angus Deaton stated in an interview, “unemployment is really bad for you…that’s something where the economists sort of said, ‘well you lose money if we give the money, it’s okay,’ and it’s not okay, or doesn’t seem to be okay.”[3] The tradeoffs in this situation are painfully clear – while the $15/hour minimum wage could increase earnings for some low-wage workers, millions would lose their entire incomes.
In May 2016, the Employment Policies Institute (EPI) interviewed 100 businesses in Washington D.C. regarding the minimum wage. Mayor Muriel Browser had just introduced a proposal raising the district’s minimum wage from $11.50 to $15/hour, and the study’s results demonstrate a clear division among surveyed businesses. According to the EPI, 51% of the businesses would reduce staffing levels, 54% would reduce staff/store hours, and 50% would hire more skilled workers in response to an increased minimum wage.[4]
While the EPI’s study only utilized data from Washington D.C., it indicates the wide variety of responses from businesses towards the minimum wage. In theory, raising the minimum wage narrows the pay gap between employees and pushes employers to replace less-skilled workers with those who have more abilities.[5] As businesses actively hire and retain workers whose outputs match their cost, and previously higher paid employees become less expensive in comparison, skilled workers will benefit from a raised minimum wage and place the jobs of low-wage workers at risk.
Increasing the minimum wage also encourages exploitation of foreign labor. Many apparel and electronics companies source labor in countries with minimum wages far below those in the U.S. If the minimum wage is raised to $15/hour, foreign labor will be much more attractive for corporations seeking to cut costs, significantly decreasing employment among American low-wage workers. An example of the interplay between overseas labor and the federal minimum wage occurred in 2014, when Gap raised the minimum wage of its U.S. employees to $10/hour.[6] At the time, Gap was one of few companies to take such a step in aiding low-wage workers, but one group of employees was noticeably excluded from the wage increase – overseas laborers. According to the company’s September 2017 factory list, Gap sourced labor from 51 factories in Bangladesh, where the minimum wage is $68/month.[7] The stark contrast between Gap’s domestic and overseas wage rates demonstrates how companies balance high domestic labor costs by exploiting the livelihoods of foreign workers.
Finally, businesses could respond to the increased minimum wage by replacing human labor with technology. In 2017, McKinsey Global Institute published a study regarding the effects of automation on employment. It concluded that workers who have the skills to handle technology will benefit from automation, while low-level workers – those who have fewer skills – would face increased wage pressure.[8] Although automation could bring new jobs to the market, higher-skilled workers would benefit at the expense of low-level workers.
To conclude, the negative consequences of a $15/hour federal minimum wage significantly outweigh potential benefits. While raising the minimum wage quickly distributes money to low-wage workers and comes at little cost to the government, it will backfire in the long term as employers pursue other sources of productive labor, including automation, higher-skilled workers, and overseas workers. Instead of protecting low-wage workers from exploitation, raising the minimum wage endangers millions of American low-wage jobs and encourages exploitation of labor forces in other countries. We must cherish our responsibilities towards those in need as we search for sustainable alternatives to aid American low-wage workers.
Endnotes
[1] Congressional Budget Office, The Effects of a Minimum-Wage Increase on Employment and Family Income, February 18, 2014, Washington, D.C.: 1-2.
[2] William E. Even and David A. Macpherson, “California Dreamin’ of Higher Wages - Evaluating the Golden State’s 30-Year Minimum Wage Experiment,” Employment Policies Institute, December 2017: 10.
[3] Sir Angus Deaton, "Can the government make us happy? Should it try?", interviewed by Sir Richard Blundell. Institute for Fiscal Studies Annual Lecture, November 7, 2016, https://www.youtube.com/watch?v=pfHcdee4R3M.
[4] “Anticipated Business Reactions to a $15 Minimum Wage in Washington D.C.,” Employment Policies Institute, May 2016: 2-3.
[5] Congressional Budget Office, The Effects of a Minimum-Wage Increase on Employment and Family Income, February 18, 2014, Washington, D.C.: 7.
[6] “Minimum Hourly Rate,” Gap Inc. Updated February 24, 2014, http://www.gapinc.com/content/gapinc/html/topnavtoolbar/faq0/​frequently_asked_questions_do_more.html (accessed March 20, 2018)
[7] “Gap Inc Factory List,” Gap Inc. September 2017, http://www.gapincsustainability.com/sites/default/files/Gap%20Inc%20Factory%20List.pdf ; “Bangladesh Minimum Wage, Labor Law, and Employment Data Sheet-Bangladesh Minimum Wage Rate 2018,” Minimum-Wage.org. https://www.minimum-wage.org/international/bangladesh. (accessed March 20, 2018)
[8] “A Future that Works: Automation, Employment, and Productivity,” McKinsey Global Institute, January 2017: 19.
Bibliography
“A Future that Works: Automation, Employment, and Productivity.” McKinsey Global Institute, January 2017: 19.
“Anticipated Business Reactions to a $15 Minimum Wage in Washington D.C.” Employment Policies Institute. May 2016: 2-3.
“Bangladesh Minimum Wage, Labor Law, and Employment Data Sheet-Bangladesh Minimum Wage Rate 2018.” Minimum-Wage.org. https://www.minimum-wage.org/international/bangladesh. (accessed March 20, 2018)
Congressional Budget Office, The Effects of a Minimum Wage Increase on Employment and Family Income, February 18, 2014, Washington, D.C.: 1-7.
Even, William and Macpherson, David. “California Dreamin’ of Higher Wages - Evaluating the Golden State’s 30-Year Minimum Wage Experiment.” Employment Policies Institute, December 2017: 10.
“Gap Inc Factory List.” Gap Inc. September 2017. http://www.gapincsustainability.com/sites/default/files/Gap%20Inc%20Factory%20List.pdf (accessed March 20, 2018)
“Minimum Hourly Rate.” Gap Inc. Updated February 24, 2014. http://www.gapinc.com/content/gapinc/html/topnavtoolbar/faq0/ frequently_asked_questions_do_more.html (accessed March 20, 2018)
Sir Angus Deaton. "Can the government make us happy? Should it try?" Interview by Sir Richard Blundell. Institute for Fiscal Studies Annual Lecture, November 7, 2016. https://www.youtube.com/watch?v=pfHcdee4R3M.