The Surprising Way Raising the Minimum Wage Could Affect Your Money
The debate surrounding a nationwide minimum wage increase is a heated one, and it’s not likely to simmer down anytime soon. This is mostly due to the ambiguous effects doing so would have on other aspects of the economy. Will these wage hikes result in pay increases for everyone? Or will small businesses be forced to raise their prices to account for such costs?
We typically think of restaurant workers and retail sectors as those most affected by this debate. But the influence expands much wider than that. Everyone should pay attention because it’s highly likely your money will be affected too should the minimum wage increase in your state.
First, let’s talk about the arguments for raising the minimum wage.
The minimum wage argument
There’s hardly anyone who still believes workers can survive on minimum wages alone. The Economic Policy Institute found that workers all across America need way more money than what’s currently given to make ends meet. By 2024 a single adult without children will need at least $31,200 — the equivalent to what a full-time worker making $15 an hour earns annually — to achieve an adequate standard of living. Workers living in other more expensive cities will need even more.
But it’s not the “need” that’s worrisome to policymakers. It’s the corresponding effects that raising the minimum wage would have on the economy that could become problematic for everyone. Could these changes benefit one sector of the workforce while hindering another? What are the ripple effects of supplying more people with larger wages, both positive and negative?
It’s too early to put definitive answers on the table just yet, but preliminary research has made some bold predictions. One city already tried it, but we’ll get to the results of that trial a bit later. One thing is for sure: These changes will affect more than just teenagers’ spending money.
Who are we talking about here?
When people consider who would benefit from raising the minimum wage, they envision teenagers working part-time retail and restaurant jobs. Forty-five percent of the 2.6 million minimum wage hourly workers were younger than 25 years of age. However, that means the other 55% are working adults who rely on this money to support families and other living expenses.
The EPI data found that the typical worker who’d benefit most from a minimum wage increase is “a 36-year-old woman with some college-level coursework who works full time.” And it’s not just those in low-skilled positions who would see a pay increase. Countless workers in the healthcare, education, construction, and manufacturing industries would get a raise. Popular jobs like bank tellers, preschool teachers, home-health aides, and nursing assistants all have a median pay less than $15 per hour according to EPI data.
It’s not just the lowest-wage workers who could benefit from a minimum-wage increase…
The ripple effect for other workers
Good news first: A substantial hike in the federal minimum wage will likely impact a large portion of people’s money. Nearly one in six workers in every state have wages equal to 150% of the minimum wage or lower.
Again, some of the most popular careers are also historically low-paying such as child care, front-line banking employees, and nursing assistants. Some studies suggest that a corresponding ripple effect across the economy could increase earnings for 30% of the American workforce. This means that nearly 35 million workers, including those earning above minimum wage, would see a boost in their earnings. Having more money to spend could also help boost the nation’s economy.
Now, the bad news: You might only see a slight bump in pay as a result of these pay hikes.
Possible price hikes elsewhere
Additional research suggests raising the minimum wage could produce unwelcome price hikes at local restaurants and retailers. Many restaurants are choosing to add a surcharge of 3% to 4% rather than raise menu prices that would kill business and prompt customers to choose cheaper options. This unfortunate gut reaction is their solution to offset rising labor costs.
The more employers pay their employees, the more the company pays in payroll tax. The National Retail Federation survey found 37% of small retailers doubt they’d be able to continue operating under a $15 per hour wage. Others worry other retail industries will soon follow suit. However, there hasn’t been evidence of consumer price hikes outside the restaurant business just yet.
Higher prices aren’t the only possible negative side effect of a higher minimum wage.
It could be harder to get a job
Many worry that raising the minimum wage will inadvertently lead to job loss and fewer openings overall. Restaurants could see a spike in business once consumers have more money to spend, but other small businesses might be burdened by increased labor costs. Sure, there are many companies that have pledged their support to raise the wage, thus committing to job growth, but there are others who say the opposite.
The Heritage Foundation report suggested that a $15 per hour minimum wage would eliminate about 9 million jobs and impact states with a lower cost of living most directly. Even California saw manufacturing and other small businesses close after the state committed to raising the minimum wage to $15 per hour by 2022. American Apparel cut over 500 manufacturing jobs alone as a result of the wage increases. The same report says just a 10% increase in labor costs leads firms to cut employment for lesser-skills workers by 6.8% overall.
But it’s not just lost job opportunities that could affect your paychecks. Workers could face increased competition for the available jobs as well.
Companies will expect more from their workers
Another potential factor minimum wage has on employees is increased expectations. This goes for workers of all varieties and pay grades. If in fact small business are forced to get more selective with who they hire and how much they pay them, they’ll want much more in return for their money. It’s possible that employed workers across the country will feel additional pressure to perform their job above standard or risk their income entirely.
Aldecco USA concludes “One thing that people on both sides of the debate can agree on is that employers will seek to maximize the productivity of every employee in order to get the maximum return on salaries. That’s what makes it so important for businesses to hire qualified, skilled professionals who can get the job done as efficiently and effectively as possible.”
A New Jersey small business owner, Bill Ashton echoes Aldecco’s sentiment in an interview with ZipRecruiter. “I think some businesses will hire less, but expect more from the people they hire”
One trendsetting city is aiming to answer these questions once and for all. It raised the wage to $15, but what happened shortly thereafter?
They tried it in Seattle and the results are mixed
Many watched and waited with a critical eye as the entire city of Seattle raised the wage minimum to $15. It was the only city bold enough to make the jump straight to $15 rather than increase it gradually like other states.
The experiment is still in early stages, so concrete data is sparse. But what we do know is that two prominent studies vary in their results. A study out of the University of Washington concluded that wage increases led to reduced hours for low-wage workers in the area. Even though the hourly wages in said jobs spiked by about 3%, the hours worked fell by 9%. The researchers concluded this led to a decrease in overall earnings by $125 in 2016.
What’s interesting, however, is that a similar study from University of California, Berkeley detailed opposite results, claiming “Seattle’s minimum wage law is working as intended, raising pay for low-wage workers, without negatively affecting jobs.” For every 10% the wage rose, industry wages rose by 1% with no corresponding effect on employment.
Others suggest that Seattle’s boom as a whole is contributing to the loss of low-wage work, not the minimum wage debate. Conflicting results aside, the changing tides in Seattle could become a national example for the rest of the country, which would have widespread effects on every American’s paycheck.
Follow Lauren on Twitter @la_hamer.
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