Is there a down side to raising the minimum wage?

Pa.'s wage is the same as the federal rate, which hasn't been raised since 2009

• Joseph Darius Jaafari
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  Joseph Darius Jaafari was a staff writer for the PA Post. His work covering crime, the military and LGBTQ issues has been featured in The Marshall Project, Rolling Stone Magazine, The Atlantic and The New York Times. He is a graduate of the Newmark Graduate School of Journalism at CUNY, and an award-winning documentary filmmaker who has produced for VICE and The New York Post. He is a native Arizonan and infamous for his love of tacos.

Ron from Atlantic, Pa., wrote in to request that we look at the downsides of raising the minimum wage.

To start, it’s important to differentiate between the federal and state minimum wages. Some states, almost exclusively in the South, don’t have a minimum wage standard (or have one set below the federal minimum), so the default is the federal minimum wage, which is currently at $7.25 an hour.

Many states and cities have minimum wages set well above the federal rate, primarily because costs vary so much between regions. That’s easy to understand: It costs more to live in New York City than State College. In 2017, only 2.7 percent of all American workers were making the federal minimum wage or less.

But what is the point of a minimum wage?

Plainly, it’s to make sure people at the bottom rung of the wage scale earn enough to support their basic needs — housing, food, clothes, utilities etc.. It’s not to get them out of poverty, though some localities or states say they set their minimums high enough to minimize recipients’ reliance on government assistance.

Pennsylvania’s minimum wage is the same as the federal one — $7.25 per hour, an amount that has not increased since 2009. Gov. Wolf says it needs to be higher, and the state Senate approved legislation in the fall to raise it to $9.50 per hour by Jan. 1, 2022. The state House, however, hasn’t shown much appetite for an increase.

Using the Bureau of Labor Statistics’ inflation calculator, the Senate’s proposed increase wouldn’t make up for inflation over the past decade (had the federal minimum wage kept up with inflation, it would currently be set at $10.41).

This is why some people talk about a “living wage,” separate from the minimum wage. Living wages vary based on where a person lives. Using MIT’s Living Wage Calculator, Dauphin County’s living wage is actually $4 above the current minimum wage. It’s even higher in Bucks County, where a living wage is just over $12 an hour.

Getting to Ron’s question: What are the downsides to raising the wage?

We know that the current minimum wage leaves many people in poverty. For example, a father of two earning the minimum wage and working 40 hours a week would make $15,080 annually. That’s almost $6,000 below the federal poverty level. Boosting the wage to $9.50 an hour wouldn’t get the father and his family above the poverty line either (that would require a $10.25 per hour wage).

But wouldn’t unemployment go up? Yes and no.

Growing up, my father ran a few Iranian restaurants in Phoenix. At times when business was slow, he cut staff and worked extra hours himself. Labor was the first to be cut (he even used the rest of the family as free labor, as evidenced by a photo of me as a toddler standing on a box of lettuce to wash dishes in the restaurant kitchen).

Nonpartisan research seems to back up my anecdote. Last year, the Congressional Budget Office found that raising the minimum wage to $15 per hour would left 1.7 million people out of poverty and give raises to 17 million people. But the CBO found such a big increase would also put 1.3 million people out of work. A $10 minimum wage would result in almost no job losses, but wouldn’t help many get out of poverty, the CBO found.

In the end, it’s about balance. Setting the wage too high could force businesses to cut jobs. Setting it too low means many people can’t afford a basic living, putting a strain on government programs and social welfare organizations (and businesses too, if workers don’t have much spending money). Certainly, failing to hike the minimum wage over the past decade — a period of significant economic growth in just about every corner of the country — isn’t helping workers at the bottom of the pile.

Hope that helps, Ron. I know it probably wasn’t the answer you were looking for, but it’s a good start to understanding the economics around the bloated politics with this topic. Plenty of smart people fall on both sides of the minimum wage debate, as evidenced in this thorough explainer from Vox.

Keep your questions coming to our Listening Post. — Joseph Darius Jaafari

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