Positioning a $15 minimum wage as the only intervention for poverty is misguided. By doing so, proponents threaten the stability of low-income areas and overlook more meaningful, sustainable alternatives. While a minimum wage increase is long overdue, Congress should index it based on inflation and respective cost of living, while also expanding childcare subsidies and reducing healthcare premiums.
A minimum wage hike, generally speaking, is necessary. The current minimum, set at $7.25, has not increased since 2009. Given inflation, $7.25 in April 2009 would equal $8.99 in June 2021. Meanwhile, housing prices continue to soar, leaving many on the brink of eviction (a one-bedroom apartment at market value requires 79-hour weeks at federal minimum wage). While federal minimum wage earners are a comparatively small group, basic necessities remain out-of-reach for many. Lower-income families face health complications, food insecurity, and homelessness at significantly higher rates than their peers, leading to a seemingly inescapable poverty cycle. Maintaining a $7.25 floor indefinitely would be ridiculous, given that over 10% of the population lives in poverty.
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If the end goal is poverty reduction, a universal minimum wage is not the most targeted or sustainable tool. The non-partisan CBO reports that, even over a 10-year period, a $15 minimum wage will increase unemployment by 1.4 million people. By extension, unemployment spending will rise, contributing to an increased deficit of up to $70 billion (accounting for rising interest rates). Childcare costs in particular will rise, given that most facilities cannot diffuse costs by drastically increasing capacity. Costs could rise by 21% across all states, with estimates from 37-43% in low-income areas. These consequences are not purely hypothetical: in a Seattle case study, a two-dollar increase led to higher costs for parents and reduced hours for staff. These consequences, following a relatively small wage increase in a relatively wealthy city, would presumably have a deeper impact on lower-income communities. The need for alternative interventions is apparent.
A uniform minimum wage accounts for neither fluctuations in cost-of-living nor the diversity of people it aims to help. Washington, DC has a cost-of-living index of 154.7, while my home state of Kentucky has an index of 94.5. Demanding that rural areas pay urban wages without raising prices or laying off employees is fantasy. The victims of such policy would be small businesses in low-wage areas, who typically run smaller profit margins than big companies and would be more vulnerable to economic shock. Employers will face heartbreaking decisions over raising prices, reducing quality, or laying off long-time employees. And while higher wages do spur consumer spending, market forces can have the same effect with less job loss. When Amazon enacted a $15 minimum wage in 2018, other businesses in the same commuting zone increased wages by an average of 2.6%. In effect, many business owners support a moderate minimum wage increase, yet oppose a federal $15 floor.
A more adaptable and long-term solution would be an indexed minimum wage with childcare subsidies, reduced healthcare premiums, and community-based social interventions. Granted, indexed wages aren’t new. Scaled minimum wages already exist informally between and within different states. Only 21 states follow the federal minimum wage; in fact, Oregon and New York already determine minimum wage by metropolitan area. In theory, regionally scaled minimum wages would standardize purchasing power across all states and all regions, thus guaranteeing a livable wage with reasonable hours.
However, a scaled minimum wage would only work in the presence of other social interventions. One compelling critique of indexed wages is the risk of stagnation in lower-income areas. This may increase social inequity and have a disproportionate impact on women and Black communities. While many interventions (notably EITC and wage subsidies) have potential, subsidizing childcare and lowering healthcare premiums would directly alleviate two common and significant financial burdens. Childcare subsidies are a good long-term intervention because they both encourage mothers to re-enter the workforce and expand access to high quality childcare. This has an immediate economic benefit, because working families are lifted out of poverty, and a long-term social benefit, because higher-quality childcare correlates with higher academic achievement. Likewise, lowering healthcare premiums would carry a short-term benefit by offsetting financial strain on employers, enabling them to absorb the shock of a wage increase without reducing employment, and a long-term benefit, by making healthcare more accessible to low-wage workers.
Finally, peer interventions can help meet individual community needs. Research suggests that wage hikes alone only narrow racial disparities between one generation, without necessarily increasing intergenerational economic mobility. At a community level, a longer-term and more targeted approach might be mentoring programs and vocational training to increase economic mobility. (The “two-generation approach” offers a particularly effective framework). By expanding access to in-demand skills, average income will increase while minimum-wage jobs remain open to those who need them. And while these interventions may seem expensive, reduced spending on other services such as SNAP (due to a decrease in poverty) will mitigate the cost.
Raising the minimum wage is only one step in reducing income inequality. Alone, it is neither effective in the long-term nor particularly meaningful. Indexing the minimum wage and tackling the two most prohibitive expenses is a more nuanced and sustainable way of reducing poverty while mitigating negative consequences.