In recent years, Democrats and left-leaning pundits have frequently described minimum-wage increases—even very large increases—as more or less a free lunch. This thinking has prompted states, cities, and counties across America to raise their minimum wage to $15 an hour or higher. Now Joe Biden wants to mandate a $15 minimum wage nationwide as part of his so-called COVID-19 relief plan.
The old conventional wisdom among economists held that such a massive increase—the current federal minimum wage is $7.25 per hour—would lead to significant job losses, particularly among younger and less-skilled workers. Today, some analysts argue that the impact on jobs would be minimal or perhaps even nonexistent. Who’s right?
In an academic sense, it depends on methodology and assumptions. As one of America’s leading experts on the minimum wage—UC-Irvine economist David Neumark—explained in a 2015 San Francisco Fed paper:
“Many studies over the years find that higher minimum wages reduce employment of teens and low-skilled workers more generally. Recent exceptions that find no employment effects typically use a particular version of estimation methods with close geographic controls that may obscure job losses. Recent research using a wider variety of methods to address the problem of comparison states tends to confirm earlier findings of job loss. Coupled with critiques of the methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested” (emphasis added).
Speaking of recent evidence, researchers at the University of Washington (UW) found that Seattle’s decision to raise the citywide minimum wage to $13 per hour in 2016 “reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”
One of the UW researchers—economist Mark Long—put that last figure into perspective.
“If you’re a low-skilled worker with one of those jobs, $125 a month is a sizable amount of money,” Long told the Seattle Times in 2017. “It can be the difference between being able to pay your rent and not being able to pay your rent.”
Nevertheless, Democrats on Capitol Hill have continued waging the “fight for $15.” In 2019, the nonpartisan Congressional Budget Office (CBO) examined the potential impact of raising the federal minimum wage to $15 an hour by 2025. CBO’s median estimate was that it would cause 1.3 million workers to lose their jobs and reduce total family income by $9 billion. A 2020 study by economists William Even of Miami University and David Macpherson of Trinity projected even greater job losses.
In a balanced and thoughtful review of the minimum-wage literature, published in 2019, UC–San Diego economist Jeffrey Clemens made a crucial point:
“Because $15 wage floors have been narrowly and only recently applied, there is no evidence to support the sweeping claim that a $15 federal minimum wage would benefit disadvantaged households at little cost. This is particularly true when we consider regions where low housing and labor costs support the social and labor market integration of both immigrants and low‐skilled native‐born workers. More than doubling the minimum wage, from $7.25 to $15.00, risks radically altering the entry‐level opportunities on which these individuals rely.”
In short: There is still good reason to believe that imposing a $15 minimum wage nationwide could destroy large numbers of jobs, especially at a moment when small businesses have already been battered by COVID-19 and pandemic-related lockdowns.