Why Some People Are Against a $15 Minimum Wage
In early 2016, California and New York made history by becoming the first states to raise the minimum wage to $15 an hour. In just a few years, every employee in those states will be required to earn at least that amount, as the laws phase in the wage increases.
For advocates of higher minimum wages — especially those in the “Fight for 15” group — the laws were a major victory. People in favor of raising the minimum wage say that when low-income employees begin earning significantly more money, they’ll put those dollars back into the economy by spending more on clothing, food, and other products. That in turn will be a boost for all industries, and everyone will benefit.
However, not everyone buys into that theory. Just recently, New Jersey Governor Chris Christie vetoed a bill that would raise the minimum wage in his state to $15 by 2021. He called the proposed change a “really radical increase,” according to The New York Times, and withheld the rubber stamp until further notice.
Christie, a Republican, isn’t the only person in the country who shudders at the thought of more than doubling the national minimum wage. Like most controversial topics, this one typically divides among partisan lines. Democrats are often the ones pushing for the new increases, while Republicans are more likely to eschew the wage hikes. However, even some left-wing economists aren’t totally sold on the effectiveness of a $15 minimum wage. Here are some of the main reasons why.
1. It could be bad for business
Yes, Christie and others like to hide behind businesses as their main excuse, instead of coming up with something more creative — and dare we say interesting. But the fact remains that many businesses really do have razor-thin profit margins, and might not be able to withstand the wage hikes without drastic measures.
Christie chose to appear at a grocery store in Pennington, N.J. to make his announcement that he was vetoing the bill. That certainly wasn’t a mistake on his part. During the press conference, the governor said that the increase in wages “would trigger an escalation of wages that will make doing business in New Jersey unaffordable.” He did so in front of a supermarket, which notoriously have thin business margins but also have a large population of minimum-wage workers. Along with fast food restaurants, grocery stores would likely be affected significantly by any large wage increases.
This is exactly why the CEO of Fatburger, a fast food chain, came out against the $15 wage hikes in 2015. Restaurants wouldn’t be able to swallow those employment costs without also increasing product prices dramatically. Americans typically don’t feel bad for “big business” — the ones who are raking in millions of dollars. But even huge corporations like Walmart probably won’t be able to pay workers $15 and hour without hurting their bottom line, one contributor to CNBC explained. No one really feels bad that Walmart might have to figure out a new business strategy. But people might look twice when the chain and others like it start laying people off or raising their prices to account for the rising employment costs.
2. It doesn’t necessarily fight poverty
Advocates for the $15 minimum wage argue that increased paychecks will help the lowest-income groups get a leg up. That’s true, for the people who already have wage-paying jobs. But it won’t do anything to help the other groups of poor people who are unemployed, stay-at-home parents, or employees in the gig economies like Uber.
“… The class of low-wage workers and the class of poor people only partially overlap,” argues Matt Zwolinski, an associate professor of philosophy at the University of San Diego, in a column for the right-leaning Foundation for Economic Education. Zwolinski also argues that higher wages will tighten the labor market. Companies will only be able to hire a few employees, and therefore choose the best possible candidates. A tighter job pool could mean that already-marginalized groups with lower education and capabilities continue to be passed over in larger numbers.
Finally, a huge group of minimum wage workers aren’t really poor at all — or at least have other forms of support. They’re high schoolers living rent-free with their parents, or they’re college students working their way through school. Sure, $15 an hour would pay for some extra books, but in some cases it’s more likely to fund the beer run. “My point here isn’t that government should do nothing to help the poor. It’s that minimum wage laws are a bad way of going about trying to provide that help,” Zwolinski concluded.
3. There’s no certainty about how it will affect jobs
Zwolinski and others also point to the fact that raising the minimum wage could lead to massive layoffs when companies can’t afford to keep so many high-wage employees on their books. One Forbes contributor raises an interesting economic theory, that minimum wage workers start to lose their jobs when the base wage is more than 50% of the median overall wage. (Simply because companies can’t keep up with the employee costs.) With the median U.S. wage at $17.40. Raising the minimum wage to $15 an hour represents 86% of that average wage — way above the 50% threshold.
However, that theory hasn’t been put to the test like this before. “It would be foolhardy to believe you could project what’s going to happen with any degree of confidence,” Jeff Clemens, an economist at the University of California San Diego whose research has found that higher minimum wages have caused job losses in the past, told Vox. For example, early reports out of Seattle show that the city’s decision to raise the minimum wage to $15 over several years hasn’t affected jobs or product prices yet — though the wage won’t be at the full $15 until 2021.
There’s not a consensus about what will happen with the job market in California or New York, and only time will tell how it will affect businesses, low-wage workers, and consumers at large. For now, people like Christie are content to wait it out and see whether those states are a success or turn into an economic cautionary tale. However, that doesn’t mean everyone is as patient. Other New Jersey lawmakers, particularly Democrats, have already said they plan to put the wage hike on the ballot in 2017, allowing voters to decide on the issue themselves.