Economists agree $15-an-hour would harm America’s economy

Original Article:

  • Author: Lloyd Corder

  • Publication Date: May 2022

  • Newspaper: Pittsburgh Tribune-Review

From worker shortages to historic inflation, Americans are concerned about the economy.

While there are many disputes about what the right solution should be, economists agree about one thing: A $15 federal wage is not the answer. In fact, it could make matters worse.

To get a better understanding of the current consensus, my team conducted a survey of 160 leading American economists to find out if they believed a $15 federal minimum wage — as was proposed last year in Congress — would help or hurt the economy. Unsurprisingly, 85% stated the federal minimum wage should be less than $15 per hour. In fact, 43% of the economists we surveyed believe it should stay at or below the current rate of $7.25.

Americans who keep a close eye on Congress may be shocked by the economists’ consensus that the $15 federal minimum wage would be wrong for the country.

After all, Democrats in Congress have been pushing a $15 federal minimum wage for almost a decade. Congress tried and failed to raise the wage twice in recent years, thwarted by a bipartisan effort. President Biden has similarly been attempting to raise the wage. He signed an executive order requiring federal contractors to pay a $15 minimum wage, which is currently tangled up in court over implementation for some businesses.

But if economists disagree about the $15 federal minimum wage, how did it become a policy platform for so many?

The namesake campaign, Fight for $15, launched in 2012 by the Service Employees International Union, didn’t choose the number based on a scientific calculation. Instead they went for optics, one organizer explained: “$10 was too low, $20 was too high, so we landed at $15.” Not exactly the kind of nuance nationally binding policies should be built on.

Our survey data reveals why economists are not as enthusiastic about the $15 minimum wage that seems to have entranced many members of Congress.

First, they believe a $15 federal minimum wage would negatively impact employment for typical minimum-wage earners. Three-quarters of economists noted a hike of this kind would reduce employment for teenagers and two-thirds said the same for entry-level, lower-skilled employees. Eighty-six percent believe it would cause a rise in automation to replace employees.

Their responses bolster the nonpartisan Congressional Budget Office’s finding last year that Congress’s $15 minimum wage bill could cost up to 2.7 million jobs across the country.

The restaurant industry — already struggling to emerge from the pandemic — will likely suffer the brunt of this blow because it employs the majority of minimum-wage earners, and because of how tipped workers are compensated.

Currently, 43 states follow the National Labor Relations Act, allowing restaurant employers to count tips toward the minimum wage requirement. This fosters a lucrative tipping system allowing tipped staff to earn well above the minimum wage. Three-quarters of the surveyed economists believe an increase to $15 per hour for these employees would reduce the number of tipped opportunities available.

Second, a $15 minimum wage mandate would significantly hurt business operations. An employer who cannot make up the added costs of a $15 minimum wage may be forced to shut down altogether, taking jobs with it. Economists we surveyed agree: 81% believe it will hurt businesses with fewer than 50 employees.

Third, a $15 minimum wage isn’t efficient at targeting poverty. Most of the economists surveyed (83%) believe the earned income tax credit (EITC) is best at addressing income needs for low-income families, by providing supplemental income to existing wages through the tax code. Only 8% believe a wage mandate would be “very efficient” in helping poor families.

A $15 minimum wage may be good for activists’ optics, but it won’t help those employees who lose their job or find their employer shut down. The union leaders and pundits pushing for this change do not understand the damage it could cause — or they don’t care.

The vast majority of economists believe the $15 minimum wage comes with serious consequences for many employees without the benefit of raising them out of poverty. Lawmakers should heed their warnings against a policy that could spell more harm than good for a recovering economy.