Democrats and Republicans are Both Wrong on the Minimum Wage
People may be forgiven if they slept through the House of Representatives passing a bill last month to gradually raise the minimum wage to $15,00 an hour. As much of an accomplishment as that may be given that the minimum wage hasn’t increased since 2009 and still remains $7.25 an hour, it isn’t likely to go anywhere. The Republican led senate is not likely to increase the minimum wage at all because it is viewed as a job-killer. And so the standard debate goes on, with the wages of workers effectively held hostage to the whims of lawmakers who still don’t get it.
Political candidates on the left continue to tout the $15.00 an hour minimum wage as the best approach for assisting the working poor. Meanwhile, conservatives, Republican politicians and much of the Economics establishment still insist that such a move is bad for the economy. The economics orthodoxy, i.e. the model of competitive markets, holds that a wage floor higher than the market clearing wage will result in lower employment. Both sides of the debate, however, are wrong because the minimum wage is ultimately about the middle class.
Without a doubt, workers at the bottom of the distribution cannot support themselves on less than $15 an hour, and because they earn so little they are in need of subsidies. These subsidies cost the nation about $152.8 billion a year. It should go without saying that subsidizing the low wages of workers is effectively a subsidy of their employers’ profits. After all, employers who know their workers are being subsidized have little incentive to pay their workers more.
Still, those who present the minimum wage as an anti-poverty measure are missing the point, as are those who oppose it because they believe there will be employment consequences. As to whether the minimum wage should be raised from its current $7.25 an hour to $15.00 an hour is an open question. Because $15 is still below the median hourly wage of $22.62 an hour — what we might call a market clearing wage — it is highly unlikely that there will be the adverse employment consequences predicted by the model of competitive markets.
On the contrary, much of the new literature on the minimum wage in recent years suggest that minimum wage increases have not had the predicted employment consequences. This has principally been because these raises are considerably below the market clearing wage. Nevertheless, a sudden increase to $15.00 could represent a shock to many businesses.
For too long the issue has been couched as a debate between those arguing for the minimum wage on the grounds that it will reduce poverty and those arguing against it on the grounds that it will lower employment. Opponents even claim that the minimum wage hurts the poor who ironically are the ones supporters are attempting to help. Wages are low, they argue because of an oversupply of low-skilled workers, and the poor tend to be the ones without skills. A minimum wage increase, they argue, will result in employers giving first priority to skilled workers, or they may substitute technology for workers.
Nevertheless, both sides miss the point here. The minimum wage should neither be viewed as a job killer nor an anti-poverty measure. Rather it should be viewed as a labor market institution that can bolster the wages of the middle class. As middle class wages increase, there is greater demand for goods and services, thereby increasing aggregate demand which could result in job creation.
New research shows that when the statutory minimum wage is increased the median wage in several intervals above the minimum also rise. And when years pass that there has been no increase in the minimum, the median wage in those intervals remains flat. Because these increases extend through the wage distribution, an increase in the minimum isn’t simply assisting the poor, but is boosting the wages of the middle class.
That it assists the middle class should be the basis upon which candidates sell it to the public. Middle class policies enjoy much broader political support than do programs that are seen as only benefitting the poor. As an example, Social Security has long enjoyed bipartisan support precisely because it was always couched as a middle class entitlement rather than an anti-poverty program.
Stressing the potential job creation component because higher wages will increase aggregate demand for goods and services should be reason for Republicans to support it. Appealing to the middle class should also be important to Democrats who seemed to have forgotten that while running to the left may be the ticket to the party’s nomination, it is running to the center that is essential to winning the general election.
Anti-poverty programs simply have no appeal to middle of the road voters. This does not mean, however, that poor people won’t benefit from an increase in the minimum wage sold as a middle class policy. They will to the extent that rising tides lifts all boats. And yet, one wonders if the Democratic left, now dominating the party, really cares about the middle class.
They know full well that a $15 an hour minimum wage proposal is essentially dead on arrival, but they propose it anyway in order to shore up their progressive bona fides. This is nothing more than a diversion from their preoccupation with identity politics. Of course, the poor are but one group that falls into aggrieved groups they speak for. But speaking for them is not the same as doing anything for them. They would do better to speak for the middle class and explain why a higher minimum wage will benefit the middle class. And then, the poor could benefit as well.
The reality is if both parties were really to speak for the middle class, they could triangulate and remove the other party’s issues. As much as the Democrats don’t get it, the Republicans are equally dense on this issue. Think of how many more working class people could be attracted to the Republican party if they would only talk about middle class pocket book issues. Alas, an outside observer would have no choice but to conclude that neither political party really cares about the middle class.
Oren M. Levin-Waldman, Ph.D