The federal minimum wage in the United States is only $7.25 per hour. It hasn’t seen a meaningful boost in this required amount for more than a decade. Although it is still a comparatively high salary minimum when compared to what a majority of the world’s population receives in compensation for their work, it is worth far less today than it was when it was first raised to that level.
Because of the lack in value of the minimum wage as it currently stands, there is a political and socioeconomic push from both sides of the aisle to raise the federal minimum wage to $15 per hour. The highest value for this wage in the U.S. when adjusted for inflation came in 1968 when workers earned $8.68 per hour. Since then, the actual value of these earnings has lost over 10% of its purchasing power.
Even the Organization for Economic Cooperation and Development stated in 2015 through a report in The Economist that the economy of the U.S. should support a minimum wage around $12 per hour. Washington State currently requires that amount to be paid to all workers, while California offers that figure to workers in a company with 26 or more employees. Oregon, New York, Colorado, and Massachusetts all have a minimum wage above $11 per hour as well.
Washington, D.C. has the highest minimum wage for all territories, states, and districts in the United States, reaching $14 per hour starting on July 1, 2019.
The pros and cons of raising the minimum wage to $15 take a look at what the impact would be on society in general.
List of the Pros of Raising the Minimum Wage to $15
1. A higher minimum wage would put more spending power into the economy.
Raising the minimum wage accommodates an increase in revenues for each community impacted by the change in legislation. When households spend their money at local businesses, then these dollars have almost double the direct and indirect economic value as they would with money spent at companies operating outside of the area.
That means the people who need the cash get the chance to meet their basic needs more effectively. As the money is spent, more vendors down the chain of purchasing get to experience these benefits as well.
2. Workers get to have a wage that maintains its overall value.
When the federal minimum wage rose to $7.25 per hour in 2009, it was the first time it had risen in total value by over 40% within a decade for more than four decades. Even with the hike in the minimum wage, the actual value of wages earned in that first year of the higher amount was 7.8% lower than what the minimum wage in 1967 was near its peak.
In 2011, the minimum wage reflected just 37% of what the average worker earned in the United States. Raising the minimum wage to $15 provides every household with an opportunity to keep their finances rising at the pace of inflation at a minimum, which maintains their overall spending power.
3. Job opportunities improve when the minimum wage goes higher.
Washington State has led the country in the total minimum wage it offers for most of a decade. The trends that occur with unemployment in the state have followed a similar path as the rest of the country. In June 2018, the rate of unemployment was 4.7%, which was 0.5% higher than California and 0.7% higher than Oregon for comparison. Washington, D.C. with its nation-leading minimum wage had an unemployment rate of 5.6% that same month.
The jobless rate for the United States at the same time was 4%. That means it is possible to pay someone a significantly higher wage without it significantly impacting jobs. Residents in the state of Washington earned $4.25 per hour more in 2018 than the federal minimum.
4. Raising the minimum wage can lead to lower employee turnover rates.
As workers increase their experience, employers find that there is a need to compensate them better. If that does not happen, then the experienced employees look for new employment opportunities are possible with a higher wage. That action forces employers into a costly cycle of turnover and training from which they might never escape.
With a higher minimum wage that extends to all worker opportunities, there is a real chance to keep experienced workers happy. This outcome can reduce hiring costs and reduce the adverse effects that high employee turnover rates can cause. There would be less movement between jobs because everyone would be earning at a similar rate.
5. Raising the minimum wage to $15 could improve local tax revenues.
Assuming that someone is working full-time at $7.25 per hour, then they would receive a total annual salary of just over $15,000. That means they would still need to file a tax return (the minimum threshold for a return was $12,000 in 2018), but their responsibility would be minimal at best. Most people who earn at the minimum wage receive a complete refund of their taxes because of their low income.
If you were a head of household earning the minimum wage, then you wouldn’t have needed to file a tax return in 2018. By raising the minimum wage to $15, there would be more money available in the economy. People could contribute more to their basic needs, and it would allow them to contribute more to local tax needs as well.
6. It might reduce the number of people on social assistance programs.
Many of the employees who earn a minimum wage often depend on social assistance programs to meet their basic needs. These households might also visit their local food bank and other community service opportunities that receive funding through local tax dollars and grants offered by the federal government.
By raising the minimum wage to $15, the dependence on safety-net programs such as these can see a significant reduction in participation rates. Although the prices of goods and services may rise modestly in conjunction with the increase in wages, the benefits to an individual’s financial well being tend to be better with the improvement than without it.
7. Fewer families might be living in poverty with an increase to $15 per hour.
Raising the federal minimum wage to $15 could move almost 1 million families out of poverty in the United States immediately. Although there would likely be individuals who lose their employment in the immediate aftereffect of raising the minimum wage to this level, the “working poor” would no longer be a socioeconomic category.
We would see an immediate economic benefit with the added wages to local economies, especially in states where $7.25 per hour is still the least amount an employer can pay. Most workers would see real wage increases after an increase in the minimum wage as well. Decreases in real income don’t start for households in a $15 per hour economy until they earn an income which is six times higher than the poverty rate in the United States.
8. Raising the minimum wage to $15 could reduce the gender wage gap.
The wage gap between women and men grew by 0.1% in 2017 even though there was an emphasis placed on creating balance in worker wages. A significant problem in gender-based salary has been in place for more than 30 years, but this issue begins to disappear as skills and specialties rise.
The wage gap between men and women decreased by just 2% from 2008 to 2017. For Hispanic women, the difference in earnings with a white man makes in the same position is even more significant at $0.54 to the dollar. Instead of creating legislation that mandates the closure of this problem, raising the minimum wage to $15 could boost wage growth more naturally.
9. A $15 minimum wage would help to re-establish the U.S. middle class.
The maximum gains for income and wages have been within the top 1% of wage earners in the U.S. economy since 2009. Wage growth for the entire economy rose faster in 2017 than it has in the last decade, but at the same time, the substantive power of those earnings has depreciated since 1980 for households within the middle class.
By increasing the minimum wage, a fairer distribution of the economy’s wealth would direct toward the most impoverished families first, then move to the middle class, before reaching the wealthy to generate a stronger value proposition.
10. It would immediately boost consumer spending at all levels.
The Federal Reserve Bank of Chicago reports that a $1 increase to the minimum wage will boost consumer spending in households at that income level by over $2,000. If the data goes to a minimum wage of $15 per hour, then the Economic Policy Institute estimates that a $5,100 increase in annual wage income would occur, providing families with extra resources that could help them to stop living from paycheck to paycheck. That could represent 50% of the annual rent or mortgage expense, 18 months’ worth of groceries, or 40% of the family’s housing expenditures.
This advantage would strength African-American communities the most, where workers average about $700 weekly in median earnings. Increasing the minimum wage could encourage more business earnings across the country through a diverse set of different ownership efforts.
List of the Cons of Raising the Minimum Wage to $15
1. This legislation would not impact a significant majority of the United States.
Although the federal minimum wage is currently $7.25 per hour, most workers are covered by a higher minimum that is set by their state or local laws. Organized labor groups want to see a nationwide $15 per hour minimum because that would help to set a consistent standard across the country, but it receives little momentum despite the fact that Pew Research found that 52% of Americans support the idea.
If Congress passed the minimum wage at $15 per hour as a federal minimum, then the impact would be felt across every state as the economies would need to shift to the new expectations – which could be double wages for some states still paying $7.25. That’s why a likely compromise of $12 per hour would be reached, so the impact would be minimal since most states already pay at or near that rate.
2. Small businesses would bear the brunt of the adverse impacts.
The cost of labor is one of the most significant expenses small businesses face every day. By raising the minimum wage to $15 per hour at the federal level, each owner would be forced to offer the mandated income and their resources may not support this considerable amount.
That means some workers will make more because of the mandated pay raise, but others will find themselves out of work because their employer can only support a certain amount for worker earnings in their budget. This disadvantage results in having more employees obtaining unemployment benefits potentially, which places another layer of stress on the local economy.
3. It would not change the problems with under-employment in the U.S. economy.
When there is an American family living below the poverty line, only 7% of these households have one person that is working full-time. There are some who cannot find work because of their personal choices, but the issue for many families is one of under-employment.
When an individual is under-employed, then they are either not working full-time hours in their preferred career or they are in a position for which they are exceptionally over-qualified, like someone with a Ph.D. working as a cashier at Walmart. The Bureau of Labor Statistics estimated in August 2018 that there were 6.2 million people in positions that were not taking advantage of their full potential. Raising the minimum wage to $15 won’t improve this issue, and it could even make things worse.
4. There could be adverse changes to the employment market.
The Congressional Budget Office estimates that roughly 500,000 jobs would be lost when raising the minimum wage to only $10.10 per hour. Increasing the amount to $15 per hour could spark a jobs recession in the United States. This disadvantage would happen because companies might restrict the quantity of new jobs they create when a higher minimum wage is mandated.
In just 90 days after raising the minimum wage in New York City, over 4,000 full-time restaurant positions were cut from the economy. Other industries might follow suit by creating application screening tools which require all prospects to meet specific educational or vocational requirements before employment instead of after.
This issue can restrict the number of openings which are available for workers who only have a GED or high school diploma, along with recent college graduates and workers who join the labor force again after an extended absence.
5. Raising the minimum wage to $15 would raise prices at every economic level.
Although raising the minimum wage to $15 per hour would generate more personal income, it also promotes higher costs for products or services offered at the local level. This disadvantage causes a scalability problem which can neutralize the influence of the higher salaries. That’s why it may be more useful to place pressure on companies to raise their wages instead of dictating it across society.
Raising the minimum wage could even increase the overall cost of living for everyone because of this issue, creating a downward economic spiral where an even higher earnings level would be needed to help each household make their ends meet. If Walmart, Costco, or Target voluntarily raise earnings instead, the impact of this issue would still be present, but not to such a significant degree.
6. Outsourcing and offshoring could become significant job killers.
Even though a higher minimum wage may be beneficial to the workers who receive it, that standard does not apply to every corner of our planet. Employers can decide to outsource their labor to countries where the costs are much lower. They could also decide to use independent contractors or freelancers to fulfill specific projects instead of hiring full-time employees with benefits.
Elaine Pofeldt, author of The Million-Dollar, One Person Business, suggests that half of the American workforce could be freelancing by 2027. “The number of U.S. freelancers hit 57.3 million this year , from 53 million in 2014 – an 8.1% increase. That means 36% of the U.S. workforce has freelanced this year,” she notes for Forbes. “Meanwhile, the U.S. workforce grew from 156 million to 160 million in the same timeframe, reflecting just 2.6% growth.”
7. It could increase the potential problems that come with illegal immigration.
There are already numerous people traveling to the United States because the availability of better wages creates the potential for a better life. Some go through the legal asylum or immigration application process to achieve this outcome, but many more do not. There were 10.7 million unauthorized immigrants in the country in 2016. Raising the minimum wage to $15 per hour could further increase this issue, potentially taking jobs away from people who need them.
It could also create a deeper underground economy where worker exploitation occurs as a way to keep goods cheap.
8. Raising the minimum wage to this extent disregards the experiences of other workers.
If the minimum wage rises to $15 per hour, then it could create disputes within the workplace. Veteran employees would see entry-level workers suddenly earning as much as they are for the same work. Some managers might even find themselves making the same amount as their direct reports in states where the $7.25 minimum wage is currently in play.
Organizations discover that they must provide structured raises to each worker above the $15 per hour mark to maintain productivity levels. Someone earning $12 per hour with 10 years’ experience might see a salary of $16 per hour instead. This hidden cost is one of the reasons why businesses start to look at automation for their low-wage positions.
9. A higher minimum wage might encourage more students to drop out of school.
If the minimum wage were to increase to $15 per hour, then some students might choose to drop out of school to begin working a job instead. The individuals who would be most at-risk for this choice are those who are either unable to qualify for college or want to work in a post that doesn’t require a post-graduate degree. This disadvantage could flatten the economy’s value over time as those without a GED or high school diploma make up to 40% less in total earnings.
Verdict on the Pros and Cons of Raising the Minimum Wage to $15
The most significant concern that critics have of the idea of raising the minimum wage to $15 per hour is that it could cost people jobs. When Alan Kruger and David Card analyzed a 1992 increase to the minimum wage in New Jersey for fast-food workers, comparing the results to neighboring Pennsylvania who didn’t take such an action, the results were surprising. The higher wages created a 13% growth rate in employment opportunities.
Economist David Neumark co-authored a study in 2017 that examined data from 1980-2015 to show that jurisdictions that raised their minimum wage also saw a rise in job loss due to the influences of automation.
With decades of research findings to support the idea, the pros and cons of raising the minimum wage to $15 suggest that there would be minimal adverse effects on the local economy. When we compare figures at the state level, the unemployment changes due to the higher earnings are negligible as well. That means if we can plan for the potential disadvantages before implementing the legislation, it might be possible to bring value back to the salaries of the middle class.
Keith Miller has over 25 years experience as a CEO and serial entrepreneur. As an entreprenuer, he has founded several multi-million dollar companies. As a writer, Keith's work has been mentioned in CIO Magazine, Workable, BizTech, and The Charlotte Observer. If you have any questions about the content of this blog post, then please send our content editing team a message here.