Almost a century after the first minimum wage laws were implemented, America still faces the question of raising the federal minimum wage. While many Americans support the $15 federal minimum wage, current wages suffice since most minimum wage workers make above it; additionally, raising the minimum wage eliminates low-skilled workers from the workforce.
Admittedly, it would be difficult to live off $7.25 an hour, the current minimum wage. However, drastically raising the minimum wage to $15 isn’t necessary. According to the U.S. Bureau of Labor Statistics, most people in minimum wage jobs make well above that. Minimum wage legislation enforces national wage minimums, but private sectors can choose to pay employees more per hour or provide benefits. In 2017, out of all 80 million people working minimum wage jobs, only 1,840,000, or 2.3% of wage workers made at or below minimum wage. When looking at these numbers, it is important to consider certain variables, such as age. Statistics from this 2017 data show that 25% of all minimum wage workers are under 25 years of age. Since most minimum wage jobs require no experience, they are attractive to teens and students, who usually rely on parents or guardians to supplement their immediate needs. For teenagers, minimum-wage work provides “spending money,” and therefore many aren’t suffering from the current minimum.
Still, the vast majority of workers are making above $7.25. The reason is the aforementioned concept of demand. If consumers highly value certain goods, they will pay more than necessary for products, as evident in markets like Starbucks coffee. Coffee inherently doesn’t cost much; Arabica beans are $1.34 per pound, or per 48 cups of coffee. However, many consumers value the Starbucks brand and are willing to pay much more than $1.34 for each cup. This high demand allows Starbucks to generate a considerable profit. In turn, they are able to not only provide their employees $10 to $15 hourly rates, but also considerable other benefits. Thus, legislation for a large minimum wage change is not necessary since many companies adequately raise wages and benefits when their product has a high volume of demand.
A major concern with raising the minimum wage so drastically is that it eliminates unskilled workers from the workforce entirely. In economist Thomas Sowell’s book, Basic Economics: A Common Sense Guide to the Economy, he writes, “the real minimum wage is always zero, regardless of laws.” The higher the minimum wage, the greater the incentive to perform low-skilled labor. Undesirable jobs are now desirable, attracting workers with education or experience. Since the job value hasn’t actually changed and is still the lowest level of work, high-skilled workers create a labor surplus in the minimum wage sector. Employers will favor hiring high-skilled workers because one can do the same work as multiple low-skilled employees. Thus, workers lacking a degree or some experience lose their jobs and remain indefinitely unemployed.
A report from the Congressional Budget Office numerically illustrates this concept. It states a $15 minimum wage would improve the salaries of approximately 900,000 people. This Budget Office estimate, upon first glance, seems quite favorable. However, they propose a $15 minimum wage would also result in 1.4 million workers receiving hour cuts and layoffs. This was demonstrated in 2015 when Seattle began increasing the minimum wage from $9.50 per hour to $10.50, then up to $13.00 in 2016. After the second boost, wages went up about 3%. However, at the same time, net hours worked decreased 9%, accounting for a net loss of income. Raising the minimum wage beyond what is associated with inflation ultimately hurts low-skilled workers.
The question remains, what exactly are the American people asking for when demanding a higher minimum wage? The purpose of minimum wage legislation is to protect workers, especially those with no education or experience. However, when laws drastically raise wages, those very same low-skilled workers end up much worse and with no hope of escaping poverty. So, who really benefits?