The minimum wage issue has been at the forefront of Republican versus Democrat politics in D.C. and in states across the country. A Pew Research Center poll found that 62% of Americans support raising the federal minimum wage to $15 an hour (Dunn, 2021). The same poll found that even 28% of Republicans are in favor of a $15 an hour minimum wage (Dunn 2021). What is the issue? Why has a policy with such broad support not been adopted? I think the only reason elected officials need is that they shouldn’t make serious economic policy decisions based off of popular support because most individuals don’t understand economic policy. But there are still a plethora of other reasons that most elected Republicans and even moderate Democrats oppose an increase in the minimum wage. Just to name a few: deciding between increasing the minimum wage to $10 or $15 an hour, minimum wage being more of a localized issue, minimum wage not being a major issue at all, and the idea that the federal minimum wage should be abolished outright. I am in the camp of abolishing the federal minimum wage. I say federal minimum wage because I think states should be allowed to set a minimum wage or not set a minimum wage. The 10th Amendment to the Constitution is clear when it says that powers not given to the federal government should be left to the states. The last time I read the Constitution I don’t think there was anything in there about dictating what businesses pay employees. I assume the federal government justifies having a federal minimum wage under the guise of the commerce clause, so we are stuck with it until the Supreme Court or Congress acts to restrict the federal government’s powers in this area. I still want to do a deep dive into these conversations surrounding the federal minimum wage.
The proponents of raising the federal minimum wage like to point outside our boarders to justify their policy. I don’t like to look to other countries to try to justify what we should do in the United States. Each country has a distinct set of issues and should make decisions that best address them. The United States shouldn’t adopt a policy just because it worked in another country, we should adopt policies if it will work in our country. But, on this issue in particular I will oblige. There is this talking point that says the United States lags behind other countries in our minimum wage. While it is true that our federal minimum wage is lower than other countries it is not by leaps and bounds. Luxembourg has the world’s highest minimum wage at $13.78 USD (World Population Review, 2021). Other countries with higher minimum wages include Australia, France, New Zealand, Germany, Netherlands, Belgium, United Kingdom, and Ireland (World Population Review, 2021). Canada rounds out the top 10 with a $9.52 USD minimum wage (World Population Review, 2021). The United States has the 12th highest minimum wage at $7.25 (World Population Review, 2021). This is of course misleading, because there are many states that already have a higher minimum wage as I will discuss. While proponents of a higher minimum wage point to these countries, they point to the Nordic economic model when they fantasize what they want the United States to be like. Countries like Sweden, Denmark, Iceland, Norway, and Switzerland do not have a minimum wage (Boyte-White, 2020). It is important to note that these countries have very strong unions and labor laws (Boyte-White, 2020). I am of the mindset that a country can have one or the other. You can’t set the market at $7.25 or $10 and then expect employers not the hover around that number. Even in union jobs having that minimum number that is out there suppresses what the union can negotiate for. I will circle back to this issue though. The numbers I am about to go into are from seven years ago, but I still think it’s important to take note of. The unemployment numbers in European countries with and without minimum wage laws differ drastically. Countries with a set minimum wage minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg) have an unemployment rates from 5.9% in Luxembourg to 27.6% in Greece (Worstall, 2013). The median unemployment rate is 11.1% (Worstall, 2013). In countries without a minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Italy, Switzerland), four of the nine countries have a lower unemployment rate than Luxembourg, the best of the other group. (Worstall, 2013). The median unemployment rate is 5.5% (Worstall, 2013). Yes, these numbers are a bit old, but it gives a glimpse into which countries best weathered and recovered from the 2009 economic crisis. If you are looking worldwide there is a strong argument toward eliminating federal minimum wage laws.
Most of the discussion still revolves around how much to increase the federal minimum wage by. Republicans will most likely go along with an increase to $10 an hour, but Democrats won’t budge off the $15 number. I think it would be good to see what effect a $10 or $15 would have on actual wages. In 2019, only 1.9% of 82.3 million hourly employees were paid at or below the rate of minimum wage (USAFacts, 2021). That is just over 1.5 million individuals. I was not able to locate a recent statistic for those that make between $7.25 and $10. I did find that in 2014 the number of workers that made above $7.25 and below $10.10 was about 20.6 million (DeSilver & Schwarzer, 2014). That number is drastically lower now considering the number of states that have increased their minimum wage and the increase in wages overall. I assume that number would be around 10 million workers today. In 2019, 39 million workers earned less than $15 an hour (Van Dam, 2021). It is pretty clear that raising the minimum wage to $15 an hour would have a much greater effect than raising it to $10 an hour. You will be putting more money in the pockets of working people. Though, we need to acknowledge that there could be some pretty big negative effects. There is this idea that I see floating around twitter that if a business cannot afford a $15 minimum wage then they shouldn’t be in business. Let’s make up a hypothetical scenario. I want to break down some numbers for a hypothetical small business with 10 employees. Start by assuming 6 employees make $10 an hour; these are your basic employees. There are 2 employees make $15 an hour; these will be your middle management employees. Finally, 2 employees make $20 and hour; these will be your management employees. Now, let’s assume the $10 an hour employees average 25 hours a week and the $15-$20 an hour employees average 40 hours a week. If this business has to increase the starting pay by $5 they would most likely have to increase the pay of their more senior employees by the same amount or they would leave. That employer now has to pay an extra $1,550 in salaries every week. For a business that size $1,550 could have been the entire profit for a week. These are the businesses that will be affected most by this policy. About 50% of workers that make minimum wage and 46% of workers that make less than $10 an hour work for business with less than 100 employees (Saltsman, 2013). Big businesses don’t push Republicans in the direction of being against an increase in the federal minimum wage. Big business will be able to cover the costs of whatever the government will throw at them. Republicans want to protect small businesses in their communities. These small businesses with less than 100 workers will not be able to keep up. So, instead of helping the 39 million workers that make less than $15 an hour, you will be helping 20 million people make $15 an hour and help 20 million people make $0. These small businesses will disappear. That will in turn increase the welfare state and negate any increase in tax revenues that the government receives. Of course, to fix this Democrats want to propose convoluted regulatory schemes for small businesses. This would only work to make things more confusing and will add minimum wage to the ever-growing list of government regulations that affect small businesses.
There are many Republicans and moderate Democrats that think raising the minimum wage above what is already federally mandated should be left to states and localities. This is a policy that seems to be working nationwide. 21 states have already adopted a minimum wage of $10 an hour or higher. Additionally, 10 states have adopted a minimum wage higher than the federal minimum wage between $7.25 and $10. I think this is the most likely path that the United States will continue to take. If Democrats will not bite at the $10 number then the Republicans will be fine with leaving the issue of raising the minimum wage to the states. Leaving the minimum wage alone can be a good strategy if Republicans can push for some common-sense economic reforms. Which leads me into my next point.
All of this should be looked at through the lens of cost of living. That is one reason why many Republicans want to leave the issue of raising the minimum wage to the states. Some states have a lower cost of living than other states. A minimum wage should be different in Nebraska than in California. Even within states, it makes sense for Indianapolis, Indiana to have a different minimum wage than Austin, Indiana. I want to look at the country as a whole though. The United States has the 27th highest cost of living in the world (Numbeo, 2021). Most counties with a higher minimum wage than the United States have a higher cost of living. Instead of focusing the raising the minimum wage, the government should focus on lowing the costs in certain sectors that they have major control over. These sectors include healthcare, K-12 education, and secondary education. In terms of healthcare, 143.3 million or 43.3% of residents are enrolled in federal healthcare programs or entitlements (Moffit, 2020). This is while costs of healthcare continue to skyrocket. In 2018, the United States spent $10,586 per capita in healthcare costs while the next closest country only spent $5,986 (McCarthy, 2019). In education, another sector where the government exercises major control, the United States spends more than most other countries. On K-12 education, the United States spent $12,612 per pupil in 2018 which ranks us 5th in the world (Hanson, 2021). This while getting diminished results. Universities in the United States spend $30,165 per full-time student which ranks 2nd in the world and nearly twice the average of $15,556 (Cooper, 2019). Everyone will go through the education system, and everyone will deal with the healthcare system. Proponents of raising the minimum wage almost always talk about the rising costs of healthcare and education as a reason for the necessity to act. When we spend twice as much as every county on healthcare and twice as much as the average country on education there seems to be some sort of disconnect. The government shouldn’t make businesses suffer for their failure in the healthcare and education sector. Lowering the costs in these areas will make a workers dollar worth more. Lowering costs in these areas will also lead to less government spending and lower taxes. This works as an extra increase in income for workers.
Some Republicans don’t think there is even an issue around the minimum wage. Democrats think it should be kept up with inflation. So, let’s look at that. In 1980, the minimum wage was $3.10 which would be $9.86 in in 2019 dollars (USAFacts, 2021). At that time 13% of individuals made the federal minimum wage or less (USAFacts, 2021). We’ve already established that only 1.9% of hourly employees make the federal minimum wage or lower today. The most recent data I could find from 2014 found that 20 million works made $10.10 or less and hour. That would be about 25% of all hourly employees. Of course, that number is again drastically lower. Today, as I discussed earlier, I would assume it would be around 10 million. That would be around 12% of hourly employees. So, based on those numbers it doesn’t look like there is much of an issue compared to 1980. For all the doom and gloom that Democrats like to focus on, it seems the idea that today’s economy doesn’t work compared to post World War 2 and the boomer economy is a false narrative.
The answer that I believe in is to abolish the federal minimum wage. Of course, Democrats won’t do that because they would have to admit that a policy that they have supported for decades is a failure. All a higher federal minimum wage is good for cutting hours and letting workers go (Smith, 2021). Additionally, fixing the defects of a one-size-fits-all policy with exemptions and more regulatory complexity won’t help (Smith, 2021). Business and localities are in the best position to determine wage policies that best fit their situation. Minimum wage effects who employers will employ (Davies & Harrigan, 2019). If the minimum wage increases it would hurt unskilled workers even more than it currently does. If employers do not think you are worth $7.25 you will not get a job. If there was no minimum wage then you could prove your worth to an employer at a price you agree to. Raising the federal wage even more will force employers to let go of less valuable employees in favor of more valuable ones (Davies & Harrigan, 2019). A higher wage doesn’t make workers more productive; a higher wage only works to make workers more expensive (Davies & Harrigan, 2019). If the government wants to be involved in wages they should incentivize businesses to increase their wages. The government can create a tax system that taxes businesses at lower rates if they have a higher starting salary. The government can get rid of the employer payroll tax and incentivize the employer to put that money toward an increase in wages. If there was no federal minimum wage it would make better sense to have stronger unions and better labor laws. When you get rid of an arbitrary number to base wages off of you can get more diversity and competition and let the market work itself out.
If after reading this you don’t agree with abolishing the federal minimum wage I would hope you have a better understanding of the opposition against it and against raising it. It is not as simple as the establishment media makes it out to be. It is not the binary of workers versus big business that we have been led to believe. Democrats aren’t out to help workers; they are out to help big business. Republicans aren’t in the pockets of big business; they want to protect small businesses. Small businesses are the backbone of local communities. One party wants to protect small businesses and one party wants to let them fail.
Sources
Boyte-White, Claire. (Apr. 9, 2020). 5 Developed Countries without Minimum Wages. Retrieved from https://www.investopedia.com/articles/investing/080515/5-developed-countries-without-minimum-wages.asp
Cooper, Preston. (Spe. 22, 2019). America Spends More On College Than Virtually Any Other Country. Retrieved from https://www.forbes.com/sites/prestoncooper2/2019/09/22/america-spends-more-on-college-than-virtually-any-other-country/?sh=4158617a3348
Davies, Antony; Harrigan, James. (Aug. 1, 2019). The Case for Abolishing Minimum Wage Laws. Retrieved from https://fee.org/articles/the-case-for-abolishing-minimum-wage-laws/
DeSilver, Drew; Schwarzer, Steve. (Nov. 5, 2014). Making more than minimum wage, but less than $10.10 an hour. Retrieved from https://www.pewresearch.org/fact-tank/2014/11/05/making-more-than-minimum-wage-but-less-than-10-10-an-hour/
Dunn, Amina. (Apr. 22, 2021). Most Americans support a $15 federal minimum wage. Retrieved from https://www.pewresearch.org/fact-tank/2021/04/22/most-americans-support-a-15-federal-minimum-wage/
Employment Policies Institute. (2021). Minimum Wage – In Your State. Retrieved from https://minimumwage.com/in-your-state/
Hanson, Melanie. (Apr. 22, 2021). U.S. Public Education Spending Statistics. Retrieved from https://educationdata.org/public-education-spending-statistics
McCarthy, Niall. (Aug. 8, 2019). How U.S. Healthcare Spending Per Capita Compares With Other Countries. Retrieved from https://www.forbes.com/sites/niallmccarthy/2019/08/08/how-us-healthcare-spending-per-capita-compares-with-other-countries-infographic/?sh=62d7bb6a575d
Moffit, Robert. (Oct. 6, 2020). The Truth About Government-Controlled Health Care. Retrieved from https://www.heritage.org/article/the-truth-about-government-controlled-health-care
Numbeo. (2021). Cost of Living Index by Country 2021. Retrieved from https://www.numbeo.com/cost-of-living/rankings_by_country.jsp
Saltsman, Michael. (Oct. 2013). Who Really Employs Minimum Wage Workers? Retrieved from https://epionline.org/oped/who-really-employs-minimum-wage-workers/
Smith, Karl. (Jan. 25, 2021). Abolish the Federal Minimum Wage. Retrieved from https://www.bloomberg.com/opinion/articles/2021-01-25/abolish-the-federal-minimum-wage
USAFacts. (Mar. 25, 2021). Minimum wage in America: How many people are earning $7.25 an hour? Retrieved from https://usafacts.org/articles/minimum-wage-america-how-many-people-are-earning-725-hour/
Van Dam, Andrew. (Mar. 3, 2021). Fewer Americans are earning less than $15 an hour, but Black and Hispanic women make up a bigger share of them. Retrieved from https://www.washingtonpost.com/business/2021/03/03/15-minimum-wage-black-hispanic-women/
World Population Review. (2021). Minimum Wage By Country 2021. Retrieved from https://worldpopulationreview.com/country-rankings/minimum-wage-by-country
Worstall, Tim. (Nov. 18, 2013). These Numbers Don’t Convince On A $10 Minimum Wage Let Alone $15. Retrieved from https://www.forbes.com/sites/timworstall/2013/11/18/these-numbers-dont-convince-on-a-10-minimum-wage-let-alone-15/?sh=283f6cd17cb3
Politics with Kegan Prentice 