One of today’s leading political movements is the “Fight for $15,” a campaign to raise the national minimum wage to $15 an hour. Democrats like Senators Bernie Sanders and Elizabeth Warren persist in their efforts to make the idea law. I have just three questions for these equality “pioneers.”
Why $15 an hour? Sure, multiples of 5 are great – you’ll never catch the volume on my stereo set to anything else – but what is the economic, egalitarian, or even logical justification? Why not $12, 17, or $38? A Pew Research Center study showed a national minimum wage increase doesn’t produce equality due to differences in cost of living. To quote the study, “the same purchasing power that $15 has in New York City would cost $13.07 in Chicago; $12 in Fresno, California; $11.10 in Cincinnati; and just $10.43 in Anniston, Alabama.” This shows the “Fight for $15” isn’t about equality as those living in rural or low-cost areas realize a disproportionate advantage; equality would be raising the minimum wage based on purchasing power in each market, the one size fits all method doesn’t achieve this.
Why pass a national minimum wage? At the beginning of this year 19 states increased the minimum wage with two more set to increase later this year; those in favor of an increase are acting upon it. We see the same in cities. Chicago, Los Angeles, New York, Oakland, San Francisco, Seattle, and Washington D.C. are moving to $15 an hour as well. These individual markets want to control their prices, so let them; especially as we see many major corporations increasing their wages above local and national minimums. As the Pew Research Center study evinced, local markets should establish their own living wage as cost of living varies. Is the push for a national increase just to keep the federal government relevant? Sounds petty so it’s probably true.
Who does this affect most? I’ll spoil the suspense and tell you: the middle-class. Here’s why:
Let’s say you work full-time at McDonald’s, a low skill job with no education requirements. You work forty hours per week, fifty-two weeks a year. If you were being paid the current national minimum wage of $7.25 an hour, you would earn $15,080 a year. Now, if we increase the minimum wage to $15 an hour you would more than double that amount giving a total of $31,200 a year. Talk about massive change, right? A job at McDonald’s earning minimum wage would lift you above the current poverty guideline for a family of five in the contiguous United States. If you don’t look beyond this 106% increase in salary however, you’ll miss what is
truly at stake.
I’m sure at some point during your education you saw a chart showing you that, even though it may take longer and cost more, overall you will earn more as your skill and knowledge increases. This argument is flipped however, if low-skill jobs earn an increased minimum wage.
Let’s take teachers for example. To become a teacher, you need at least a bachelor’s degree which, if you follow the traditional route will take four years. If you are a penny pincher, you will take the cheaper option of an in-state public university. According to StudentLoans.gov, the average student loan debt from such an institution is $26,946. If you take the standard approach you will have a 120-month repayment plan at a 3.9% interest rate amounting to $272 a month or $32,585 over the life of the loan. You will then go to your job as a secondary teacher in, say, Washington state at the starting wage of $35,700 per year with increases based on a sliding scale.
Remember that minimum wage worker? Well the whole time you’ve been at school they’ve been earning $31,200 a year; so, after your schooling is complete they have earned $124,800 more than you. To make matters worse, taking into consideration loan repayment ($3,264 annually) you’re making only $1,236 more than them. But fear not, your wage will increase and your loans will eventually be paid off.
As you approach eight years of teaching you realize your pay will be maxed out without any further education so you decide to get your M. Ed like around 56% of your teaching colleagues. There are plenty of options for location and cost, but we’ll say it costs about $9,000 and takes two years. If you finance this with the same standard option, over one year you’ll spend $12,047. However, the following year you will see a significant pay increase.
After eleven years of teaching, six years of schooling and $47,747 in cumulative debt, your annual income is almost $7,841 more than your minimum wage counterpart; just like you’ve been told all your life, education pays off. Looks can however, be deceiving. In fact, your minimum wage counterpart has amassed $81,061 in lifetime earnings more than you. In total, assuming the minimum wage employee never receives a raise, promotion, or overtime, it will take you about fifteen years of teaching (19 years post high school graduation) to surpass the earnings of a minimum wage employee.
Fifteen years! That’s enough time to redo K-12 and decide you don’t want to deal with all the debt and time out of the work force. While some people may have a passion for a low-paying profession which requires a degree, I think you would find many people opt for the simple life of flipping burgers when they can earn a similar amount until they are into their late 30’s.
If you follow through logically there are at least three possible outcomes of the minimum wage increase:
- Pay scales will necessarily shift. As the teacher scenario demonstrates, if wages do not adjust across the board those with college degrees or even a Master’s could wait fifteen years to possibly earn the same as a low-skilled employee. Most with college degrees won’t want to make the same as an 18-year-old filling your drink, therefore, the pay scale will shift to reflect the education and skills required. This is essentially inflation. Rather than the government printing money as they did with quantitative easing, they will force businesses to flood the market with dollars. This would then lead to an increase in costs to the consumer which would, in turn, lead to an increase in the cost of living which would require a new minimum wage. Fight for $50 has a nice ring to it.
- Layoffs will happen. Or at the least, people will see a reduction in hours and will be forced to do more for a business to avoid profit loss. You see this already with the ACA forcing employers with 50+ employees to provide health insurance; if you add a cost to a business, the business cannot grow or may be forced to downsize.
- People earning more volunteering to take a pay cut. Look to the advent of self-serve kiosks and employee free grocery stores to tell you how likely this option is.
So why $15 an hour? If you want to force employers to pay a certain amount, you’d better have a reason for it other than liking the alliteration in “Fight for $15”. The reason for the shortsightedness of the movement is they have no idea what the hell they are talking about. So, before you grab that sign and protest, do some basic math. Lord knows the Democrats won’t.
A few points of order, some that help your argument, some that are counter to it. For one, many studernts would kill for a 3.9% rate. Republicans in Congress killed a bill that would lower student loans to prime rates. As it is now, banks can charge sub-prime rates on non-discharable loans. Making your estimates of student loan rates below avrage. Secondly, inflation is an increase in the price of goods in response to an increase in the money supply, not a result of businesses paying people more. Let’s look at the minimum wage increase in Seattle. While there was an increase in the price of some goods and services, it was limited to only a few industries. Mainly food service and other industries that rely heavily upon minimum wage workers. The price of flight lessons, hiring a lawyer, or watching a play have not changed. This is not inflation, this is a localized increas in prices. Furthermore, many of these places have seen an increase in demand due to an increase in the discretionary income of these minimum wage workers, and now they are making more money than before and can hire even more workers whiole seeing an increase in the productivity of their workforce, resulting in a gain of marginal productivity and profit. Third, your point on the ACA is flat wrong. All studies have shown that at worst the ACA has had no impact on employment, and has potentially directly led to job growth. The biggest complaint coming from the smaller businesses is the complex reporting process, not that they are required to offer insurance in the first place. Finally, computing the proper minimum wage is very complex math, not the simple arithmetic you are displaying here. I get that you are trying to explain a complex idea, and for the majority of people, it will go right over their head. While your arguments may seem valid, they rest upon false realities and logical fallacies. “If you hire good people, give them good jobs, and pay them good wages, generally something good is going to happen.” James Sinegal, founder and retired CEO of Costco.
Thanks for your feedback. You are correct, this is a complex issue to discuss in a two-page blog and it is certainly more complex than simple arithmetic – the minimum wage will be phased in, there will be cost of living adjustments, extra pay for continuing education, etc. However, the inflation argument is due to an increase of money supply based on the assumption pay scales shift. Initially, if everyone is paid more, demand for goods will increase which will drive costs up. You cannot extrapolate the national effects of a minimum wage based on its implementation at local levels; the effect it has on Seattle is not the same it will have on Podunk, Nebraska. We also have yet to see the full impact as the $15 minimum wage has yet to be completely phased in. As for Sinegal, Costco raised their starting wage to $13 an hour nationally and are now raising the cost of membership; wage can’t be viewed in a vacuum.