The Value of Admitting that Raising the Minimum Wage Could Cost Jobs

A few weeks ago I watched Bill Moyers interview conservative economist Arthur Brooks as he mouthed the Republican talking point that the problem with the minimum wage is that “it hurts the people it’s supposed to help” because it eliminates jobs. Moyers politely countered that “some studies” show that minimum wages do not kill jobs. A few days later the PBS News Hour rehearsed an almost identical dialogue between an advocate of living wages and an opponent – a battle of studies about potential job loss. You have undoubtedly heard similar talking-point contests dozens, if not hundreds, of times.

The problem with this debate is that it goes nowhere and educates no one about the relationship between declining real wages for 3/4ths of those employed and the very slow and low economic growth that leaves us with an official unemployment rate above 6%.   By itself an increase in the federal minimum wage to $10.10 an hour by 2016 and then adjusted for inflation each year thereafter, as proposed by President Obama, is insufficient to address these problems. But as the leading edge of a broader program to increase worker spending power in order to get the economy growing more fully, it could be the kind of signature issue that rallies the Democratic base of young people, women, and people of color while also attracting a significantly larger portion of the much-prized white working class (defined as whites without bachelor’s degrees).

For the minimum wage to be a leading edge of such an economic program, however, progressive Democrats have to admit that a large enough and quick enough increase in the federal minimum wage does, in fact, threaten the loss of some low-wage jobs. They have to abandon their “studies show” approach to defending a minimum wage increase, and instead develop a larger narrative about how our gross and still increasing inequality of income and wealth is the principal reason our economy is growing so slowly and, therefore, producing so few jobs.

What’s more, it does not take much political courage to exploit this opportunity because increasing the minimum wage is so damned popular. This is clear from the public reaction to the Congressional Budget Office (CBO) report that concluded, as USA Today headlined, that a “Minimum wage hike could cost 500,000 jobs.” Weeks after this news was widely proclaimed, and typically seen as declaring the Republicans the winner in the “job-killer” talking-points debate, a Pew Center survey found that nearly three-quarters of the public supported a $10.10 minimum wage as proposed by the President.

The strongest argument for a substantial increase in the minimum wage is the one President Obama articulated recently, the simple moral imperative that: “Nobody who works full time should ever have to raise a family in poverty.” The public, including even a slight majority of Republicans, apparently accepts this imperative even if it might cost a substantial number of jobs.

What the CBO report actually said was that somewhere between zero and 1 million jobs might be lost, settling on the 500,000 figure as an educated guess – and thus granting that Democrats could be right in insisting that no jobs might actually be lost. At the same time, the CBO estimated that at least 16.5 million workers would get higher wages directly (because they make less than $10.10 now) while additional millions making a bit more than $10.10 now might also get raises from a “spillover effect” –including, in the CBO’s words, “a few higher-wage workers [who] would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase.” Thus, the CBO thinks there is a trade-off: of the 17 million workers directly affected, 97% would definitely benefit while 3% might lose their jobs.

Equally important, the CBO compared President Obama’s earlier $9-an-hour proposal with the current $10.10 one, and found that many fewer people would benefit from it (7.6 million) but fewer jobs would be put at risk (only 100,000). Thus, by reducing the amount of increase, the trade-off is also reduced: 98.7% would definitely benefit and only 1.3% might lose their jobs, but less than half the number of workers would be affected.

This is the single most important thing about the federal minimum wage: the higher the wage floor, the more people who benefit but the more jobs that are put at risk. For most public policies (or private ones for that matter) something that benefits 97% but harms 3% would be considered an excellent risk-reward ratio. But the loss of a job (even a low-wage one) in our society is such a punishing harm that it makes most people hesitate to “throw anybody under the bus.” Though majority public opinion supports the $10.10 minimum wage anyway, the threat of job loss undoubtedly reduces their ardor and thus the saliency of the issue in elections. The Pew survey cited above, for example, found a large gap between support for the increase and the degree to which that support would affect people’s votes.

If, as Democrats currently do, you want to insist that increases in the minimum wage won’t cost any jobs, you have to keep the increase relatively low. On the other hand, if you grant that jobs may be lost and you are not indifferent to that, then the logical response would be to search for a way to replace the 500,000 jobs that might be put at risk.

Such a way is easily found in another highly popular Democrat proposal: government investment in infrastructure — roads, bridges, water and sewer systems, public transportation, weatherization and other energy efficiency, and green technology. All these are included in President Obama’s current budget proposal before Congress, though at very small levels. The President proposes an increase of just $75 billion a year for the next four years, while the House Congressional Progressive Caucus (all Democrats) wants $130 billion a year over ten years, and the American Society of Civil Engineers estimates that we need $225 billion a year over the next 16 years. Using Council of Economic Advisers’ estimates, Obama’s minimalist plan would create 975,000 jobs, while a fully developed program that would meet our infrastructure needs would provide 2.8 million mostly decently paid construction jobs.

I may be comparing apples and oranges among these various plans, but you get my point. The President’s minimalist plan would create more than enough well-paying jobs to replace any low-wage jobs that might be lost due to increasing the minimum wage to $10.10 an hour. If we actually invested amounts like the American Society of Civil Engineers thinks we need, we should be able to offset any jobs lost to an even higher minimum wage – say $15 an hour. Over time, low-wage jobs would be replaced with higher wage ones, greatly increasing worker spending power, reducing inequality, increasing economic growth, and creating even more jobs.

Such an ambitious infrastructure program would have to be paid for, and the President has proposed to pay for his minimal program through a variety of small tax increases based on eliminating loopholes for corporations and individuals. But here our great inequality of wealth and income becomes a distinct advantage, as one of our most plentiful national resources is rich people with much more money than they need. As I have pointed out before, there are any number of ways to increase taxes on the top 1% or 2% without significantly reducing their living standards and life prospects. $220 billion is chump change for a group that each year earns $2 trillion more than they used to when labor unions forced productivity sharing on profitable companies.

You may say this is all pie in the sky, but I offer it as a winning political program for Democrats – one that simply ramps up and connects several existing Dem proposals. A minimum wage that could really make a difference in people’s lives would disproportionately benefit the Democratic base of young people, women, and people of color – giving them a reason to vote. An infrastructure program at a scale we actually need in the 21st century would disproportionately benefit white working-class men, a key part of the Republican base, while also providing opportunities for renewed affirmative action hiring requirements in the building trades. A large tax increase on our oligarchs would satisfy many people’s sense of justice while providing the money to get the economy growing again at a pace that can provide jobs and wages that make everybody’s lives better.

This is a program that could give working-class people of all colors and genders a reason to vote and a reason to vote for Democrats. Republicans are currently blocking small increases in the minimum wage, minimalist investments in infrastructure, and tax increases on the rich of any kind. Why not propose something big enough to make a difference – replacing low-wage jobs with well-paying ones – and then win elections that might allow you to actually do it?

Jack Metzgar
Chicago Working-Class Studies

This entry was posted in Contributors, Issues, Jack Metzgar, The Working Class and the Economy, Working-Class Politics and tagged , , , . Bookmark the permalink.

7 Responses to The Value of Admitting that Raising the Minimum Wage Could Cost Jobs

  1. Frank Stain says:

    Unfortunately the vast majority of the working class have got it into their heads that low wages are caused primarily by the influx of millions of undocumented immigrants. The Right has been playing the usual game of using race and ethnicity to divide the working class against itself. And as usual, the working class is playing along with it. The argument against the minimum is not just that it is a jobs killer. There is also a popular sentiment that people earning minimum wage are just kids doing nonsense jobs. if you try to make them pay decent wages, those jobs will be automated out of existence. Of course, those arguments are difficult to substantiate. But at the moment, the prevalence of mean-spirited, dog-eat-dog tribalism among the working class is making it exceptionally difficult to get a hearing for sensible policies

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    • Wendell Ricketts says:

      Is there any actual empirical (vs. anecdotal or impressionistic) evidence that the working class really does think that low wages are the result of illegal immigration? I’m not challenging, I’m just asking. It strike me that, while one could have a sort of vague impression that all the “good” jobs had been off-shored, it seems hard to look around at low-wage jobs in one’s community and think that they’re actually being performed by immigrants (undocumented or not). W.

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  2. Marissa says:

    I feel as tough if profits were more equally shared amongst the workers an the higher level faculty, minimum wage increases would galvanize the economy, increase jobs, and be an overall boost to a stagnant working class economy.

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  3. szczelkun says:

    And how does Universal Basic Income feature in this range of policy choices in the USA? In Europe there seems to be a groundswell of support for UBI. A simple way of ending poverty in my opinion.

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    • Jack Labusch says:

      Thanks, szczelkun. UBI is linked to the “precariat” idea, right? (I don’t follow these ideas too closely.)

      I’m not quite sure what minimum wage actually means. The manager of my local jobber-owned gas station/C-store earns about $20,000 annually. Twenty years earlier, BP owned the same unit, paid its manager about $20,000 annually, and, unlike the jobber, also hired two morning clerks to work the registers and lottery games, and do minor maintenance and clean-up, such as replacing receipt paper in the pump tops. Twenty years before that, the location was a Sohio-owned service station, with two repair bays and two or three fuel islands. The manager earned about–$20,000 annually, somewhere around six times the annual income of a minimum wage worker.
      My point? Those head-slapping arguments about minimum wage that TV pundits like to engage in don’t do justice to fairly complex and readily observable economic phenomena.
      FWIW-minimum wage employers are often plagued by high turnover, irregular attendance, higher training and recruitment costs, worker efficiency issues, etc. that could likely be remedied by better pay. Few employers, I think, actually want to solve some labor problems with market-based solutions that involve spending money.

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      • Wendell Ricketts says:

        I don’t feel as though I have enough information to know whether raising min wage would actually resolve the issues of “high turnover, irregular attendance, higher training and recruitment costs, worker efficiency issues.” It sounds logical, but is there data on this? If McDonald’s-type jobs are considered crappy jobs—with all the problems that come from having a workforce that basically hates what it does for a living – isn’t one of the reasons that people are aware that their time is being treated as all but worthless? When people tell kids “you don’t want to work at McDonald’s all your life, do you?” (the contemporary version of my parents’, “Do you want to spend your life digging ditches?”), isn’t it also because those are really dead-end jobs? And yet they seem to be the jobs of the present and future, and they can’t be out-sourced, so why not treat them like careers? If workers received decent wages, benefits, the possibility for advancement, would that make a difference? I mean, my mother was a bartender all her life. She considered it her profession and the way she supported her family—not a menial job she was doing until “something better” came along, though she never had insurance or a retirement plan. Still, I wonder. I can’t believe employers like McD’s haven’t done these calculations and concluded that the “soft” costs of turnover, constant training and recruitment, etc., aren’t actually lower than paying higher wages.

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  4. Kelly Ohler says:

    While I agree that “the government,” or we the people, should insist that a constant stream of jobs paid for by our tax dollars include building and maintaining infrastructure and green technology, but to suggest that businesses be given a pass on providing minimum wages to workers in order to accomplish this is ludicrous. We could cite articles pro and con all day about the real effects of minimum wage, as the capitalist elite makes certain “studies” that prove minimum wage increases cost jobs are pushed into the public consciousness. If such a notion were true, let’s have a list of companies that have been put out of business by increased minimum wage. Business would have the entire country on its side, if they could document ONE company who struggled with minimum wage issues, and couldn’t rebound. I would watch that documentary, if one could ever actually exist. But, since business cannot show that, then it must not be true. Statistics in abstract studies are all they rely on to put forth their justifications for maintaining poverty. And “working-class” institutions should not be helping t6hem do it.

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