Since President Biden took office, there has been a lot of talk about raising the federal mandated minimum wage, which currently sits at $7.25 an hour to $15.00 hour.
The US federal minimum wage has not been raised since July 2009.
The debate surrounding minimum wage is not new, but is an essential component of economic policy when discussing costs and standards of living, but like any policy, there are pros and cons.
The Congressional Budget Office has released a report earlier this month, discussing the budgetary and economic effects of raising the minimum wage.
If you were to search Google “$15 dollar minimum wage” and clicked “News,” roughly 270,000 results would populate. Since President Biden took office and news began to circulate about economic stimulus plans to drive the United States out of the novel coronavirus pandemic, advocates and progressives have begun to push a policy that raises the federally mandated minimum wage from $7.25 per hour to $15 per hour, a rate that hasn’t risen since 2009.
Under these news headlines that populate with a simple Google search, Americans will find headlines discussing the pros and cons of raising the pay rate, especially in certain areas, and generational differences in ideologies. For example, the Hill, a prominent news source of everything politics, has an op-ed headline, “A $15 minimum wage means fewer skills for younger workers,” which sits at sixth on the list of news articles in the Google search.
Like any policy, there are always costs and benefits associated with them. One of the most illustrious arguments against raising the pay rate is the notion of business layoffs and an increase in unemployment levels, which the Congressional Budget Office has projected “that a minimum wage increase from [just] $7.25 to $10.10 would result in a loss of 500,000 jobs.” When factoring in standard microeconomic theory, this consequence is valid due to higher labor costs.
A study from the Federal Reserve Bank of Cleaveland found that although wages would be higher, prices and cost of living would also rise due to the rise in labor costs and production costs.
Another argument against raising the pay rate includes the impact on small-business owners, with a Gallup poll concluding that “60% of small-business owners say that raising the wage will hurt most small-business owners.”
Benefits of raising the minimum wage
According to the Economic Policy Institute, raising the wage rate to $15 per hour would “generate $107 billion in higher wages… and help stimulate the economy and create new jobs.” The raise would also help reduce the poverty level by upward of one million individuals.
Progressives and advocates also have stated that a higher minimum wage would reduce government welfare spending, with a Center for American Progress report in 2014, that a $10.10 per hour rate could reduce Supplemental Nutrition Assistance Program spending by almost 4.6%, and save between 7 to 8 billion dollars off annual government spending.
What the Congressional Budget Office Reported
As stated previously, every policy has its pros and cons, but that doesn’t mean a policy is necessarily good or bad. According to the Congressional Budget Office, or CBO for short, raising the federal minimum wage has a lot of effects. So let’s break down some of the findings:
For deficit hawks, the increase would add roughly $54B to the deficit over a ten-year period.
Higher prices due to higher labor costs, which in turn causes an increase in federal spending.
Would increase spending for some programs, i.e., unemployment compensation, BUT cut spending on welfare programs.
An increase in federal net revenues.
In a 10-year period, the cumulative pay of affected people would increase by $333B.
Employment in 2025 is projected to be reduced by 1.4 million workers or 0.9 percent.
Yet, the number of people in poverty would be reduced by almost 1 million.
Why this Matters
The minimum wage affects more than take-home pay for our lowest-earning citizens. The American republic is built upon the success of our economic capabilities, entrepreneurship, and how we respond to the growing concerns of everyday citizen’s economic confidence. These policies are not easy to agree on. Still, political ideologies must understand that to solve critical problems like the minimum wage. Action must be taken at all levels rather than inaction.
Thirty-one states have increased minimum wages above the $7.25 threshold, according to Paycor, yet ultimately it is Americans and their elected officials to decide whether the benefits outweigh the costs.
Jonathan Solomon holds an Associate in Arts from Trident Technical College where he studied political science, philosophy, and economics, he is now finishing up his BA in Political Science with a concentration in politics, philosophy, and law from the College of Charleston. He self-identifies as a pragmatist wanting to help educate and create policies and public administrative practices that benefit all people, regardless of political differences.