$15 Minimum Wage? Labor Economists Still Not Sure

By Ben Penn and Chris Opfer
With reporting by Larry Swisher

Dec. 7 — The fight for a $15 per hour minimum wage began as a worker organizing demand and is picking up support from a growing share of Democratic politicians, but even some liberal economists wonder if that number is too high.

A wide range of labor economists favor increasing the federal minimum wage from its current $7.25 rate. Many told Bloomberg BNA that they’re a little skittish, however, about the possible job losses that could come with going all the way up to the $15 per hour.

“The right answer is we don’t know, and it’s not exact science,” Chris Tilly, a labor economist at the University of California, Los Angeles, told Bloomberg BNA Dec. 2 of the potential impact of a $15 minimum wage. Tilly was among a group of more than 200 economists who in July signed a letter in support of the $15 rate.

Just because economists sign a letter in favor of a wage raise doesn't mean they're sure about how well the hike will work out. A University of Chicago Booth School of Business poll in September showed about two-thirds of nearly 50 leading economic experts—including those in labor and other focus areas—either agreed or were uncertain when asked if a federal minimum wage of $15 by 2020 would “substantially” reduce the employment rate.

“I think any economist who tells you that they know where the sweet spot is is talking beyond the data,” Elizabeth Oltmans Ananat, an economist at Duke University, told Bloomberg BNA Dec. 2. Ananat has previously backed raising the pay floor to $10.10, and said she's “not worried' about going as high as $12 an hour nationwide.

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“Certainly there are some places in the country where $15 is not a big deal, but there are other places where wages are much lower and it would be a big deal,” Ananat said.

Walkout Spurred Fight for $15 

The genesis of the $15 figure can be likely pinpointed to a day-long walkout in 2012 by some 200 fast-food employees in New York City. That action sprang from a campaign backed mostly by the Service Employees International Union, with the stated goals of achieving at least $15 per hour and union representation rights for fast-food workers.

Three years later, those two demands have not been met, but the campaign—now known as the Fight for $15—has spread to hundreds of cities and other industries such as retail, home care and airport passenger services. Their 14th and most recent coordinated day of action was Nov. 10 in 270 cities. Under considerable financial and strategic support from the SEIU, the effort has also played what some see as a major role in the passing of $15 minimum wage ordinances in three West Coast cities.

A pair of Democrat-backed bills to raise the federal minimum wage to $12 and $15 respectively are unlikely to move in Congress. Still, the fast-food movement and growing number of state and local minimum wage hikes have started a debate among left-leaning lawmakers and economic observers about just how high the federal pay floor should be set.

“We’ve identified it as a way to signal to them that, while it may be difficult to get it through in Congress now, it is worth a try,” Rep. Keith Ellison (D-Minn.) told Bloomberg BNA Dec. 1, referring to social justice groups pushing for higher wages. “As they bargain with companies in the street through protests and demonstrations, it’s important that we signal that there are people in Congress that believe they have a righteous and just cause.”

Sanders Backs Workers 

Ellison and Sen. Bernie Sanders (I-Vt.), who’s running for the Democratic presidential nomination, are the sponsors of a bill (H.R. 3164, S. 1832), to raise the wage floor to $15 an hour. Sanders said the increase, which would happen in five steps over four years, would ensure that full-time workers make a “living wage” of at least $30,000 per year.

“$15 an hour is—in fact—a living wage,” Sanders told Bloomberg BNA Dec. 3. “That is what the people leading the fight want to see and I support that.”

Asked to explain the process that led organizers to select $15 as their desired floor pay, a Fight for $15 spokesman told Bloomberg BNA in a Nov. 30 e-mail, “The target of $15/hour came from the workers themselves—they chose $15 because they say it’s the minimum that anyone needs in order to support themselves.”

The campaign spokesman also pointed to an economic justification from Robert Reich, labor secretary under President Bill Clinton and a professor of economic policy at the University of California at Berkeley. Reich, in an Oct. 19 post on his website, acknowledged that some accomplished economists are nervous about job reductions from a $15 minimum. “Yet maybe some jobs are worth risking if a strong moral case can be made for a $15 minimum,” Reich then countered.

Although the campaign says it's acting purely on workers' desires, remarks from the Fight for $15 national organizing director have been used by business advocates as evidence that organizers arbitrarily plucked $15 out of thin air. Kendall Fells, an SEIU employee, led the initial organizing drive in New York before taking on the same role at a national level.

At a 2014 panel discussion hosted by the National Employment Law Project, Fells explained how organizers settled on a $15 minimum wage demand. “I would say that it was a pretty scientific process—$10 was too low and $20 was too high, so we landed at $15,” he quipped, before breaking out in laughter.

Economists Not Sure About Productivity 

Several economists told Bloomberg BNA that they support hiking the pay floor to at least $12 as a way to fight income inequality and wage stagnation. They said the minimum rate, which was first established in 1938 and last raised in 2009, hasn’t kept pace with inflation and gains in worker productivity.

“We’re a richer country, and we have more productive and educated workers,” University of Massachusetts Amherst economist Jeannette Wicks-Lim told Bloomberg BNA Dec. 2. “We have all these things changing, but you don’t see workers’ wages going up.”

Worker productivity jumped by more than 52 percent in the last 20 years, according to figures from the Bureau of Labor Statistics. Workers’ inflation-adjusted hourly earnings increased by only about 17 percent over the same period.

Meanwhile, the divide between the highest and lowest ends of the income spectrum appears to be growing. The median net worth for all American families ticked up to $81,000 from $77,000 over the two-decade period ending in 2013, according to the Pew Research Center. The net worth of the country’s upper-income families—those earning at least $150,000 per year—skyrocketed to $639,000 from $318,000 during the same time.

Economists who back a minimum wage hike say the low pay floor means that taxpayers wind up subsidizing businesses that pay their workers the minimum rates. That's because many of those workers are eligible for food stamps, public housing, Temporary Assistance for Needy Families (TANF) and other government assistance.

Earlier this year, Wicks-Lim and her colleagues released a study finding that the fast food industry could absorb a four-year move to a $15 minimum wage without having to shed jobs. Instead, they said employers could cover the increased payroll costs with a “modest” price increase, savings related to lower worker turnover, and higher sales based on both trends and more spending money for employees.

The key, Wicks-Lim and other economists told Bloomberg BNA, is that wage hikes are implemented over time.

“I think any increase needs to be somewhat gradual,” Robert Shapiro, who served as Under Secretary of Commerce for Economic Affairs in the Clinton administration, told Bloomberg BNA Dec. 1. “If it is phased in over several years, you should get very little negative employment effect.”

But even some economists who are sympathetic to the Sanders and Ellison proposal have reservations about moving the floor to $15. At that point, some said the pay rate may outstrip worker productivity in fast food and retail positions based in areas where the cost of living is relatively low.

“Look, everybody would like everyone in America to be making a decent wage,” Shapiro said. “But, economically, you go to $15 quickly and what you have is a lot of workers who don’t generate $15 an hour in revenues and so it’s unjustified.”

Shapiro, who founded the Progressive Policy Institute, said he’s “perfectly fine” with moving to a $12 national minimum wage. Although higher wages generally mean more consumer spending, he and other economists said they're not sure whether the revenue jolt would be enough to support the $15 rate.

Balancing Median Wage 

Several labor economists also cited one economic indicator as a particular reason for hesitation.

The ratio of minimum-to-median wage, which varies depending on region, is often used as a barometer of a state or city's ability to absorb a minimum wage hike without negative employment consequences. Based on the current federal level of $7.25, today's ratio is about 36 percent, down from 55 percent in 1968, when the minimum wage had its highest value, David Cooper, an economic analyst at the Economic Policy Institute, told Bloomberg BNA Dec. 2.

The median is the midpoint, where half of the workers earn more than that amount and the other half, less. Therefore, those now earning the minimum wage, are paid hourly wages that are 36 percent of what the typical worker earns per hour.

Depending on wage growth trends in the next few years, the $12 by 2020 proposal would move the ratio back up to 55 percent, Cooper said. A $15 minimum wage over that time period would bring the ratio “significantly higher than that, and that's why economists have been a bit” dubious “when folks talk about $15,” he added. Cooper said $15 would be much more attainable if middle-wage workers “see their pay rise more quickly over the next few years.”

EPI, which receives about a quarter of its funding from labor unions, is a think tank that says it is committed to including low- and middle-income worker needs' in policy discussions.

Jared Bernstein, a former economic adviser to Vice President Joe Biden, said that the 2014 median wage in Mississippi was about $15, meaning an overnight hike to a $15 floor pay would affect half the state's workforce. Although the abundance of research on this issue “largely concludes that moderate minimum wage increases have had the intended effects of” lifting low-income workers' wages without hurting employment, “you can't fall back on some of the prior” research in places like Mississippi, added Bernstein, now a senior fellow at the Center on Budget and Policy Priorities.

Tilly, who directs UCLA's Institute for Research on Labor and Employment, concurred, noting that even if job losses arise from a minimum wage hike, that's not necessarily “a reason for pulling the plug, but it's a reason for weighing the trade-off.”

Paul Sonn, general counsel at NELP, told Bloomberg BNA Dec. 3 that examples like Mississippi are “really beside the point” because “Republicans aren’t going to raise the minimum wage to $9, let alone $15.”

“Instead, making $15 the Democrats' and progressives’ national demand helps state and local campaigns win bigger increases—and sets up the Democrats to win as strong an increase as possible whenever they eventually take back Congress, years down the road,” Sonn added. NELP is a worker advocacy organization that has no formal affiliation with the Fight for $15, but has been a strong campaign ally from the get go.

State, City Support Grows 

As illustrated in a Bloomberg BNA analysis of state and local minimum wage trends, workers in many areas are entitled to minimum wages that are higher than the federal rate.

On Jan. 1, 2016, 11 states plus Washington, D.C. will set their floor pay at $9 per hour or more. An additional 15 states will have minimum wages between $7.51-$8.99.

Much of the state minimum wage movement has occurred in recent years. Rhode Island was the only state to pass a pay floor boost in 2015, while 10 states plus D.C. enacted wage increases in 2014. Ballot initiatives were also approved by voters in four traditionally red states last year, bumping the minimum wage anywhere from $8.50-$9.75.

A $15 minimum wage has so far been approved only at local levels, including phased-in hikes in Seattle, Los Angeles and San Francisco. New York state did pass a $15 floor pay specific to fast-food workers, which the state's governor is now hoping to apply to all workers.

A few states have minimum wage rates below $7.25, dropping to as low as $5.15 per hour in Wyoming. In those states, the federal level still applies to all workers who are covered by the Fair Labor Standards Act.

Multiple economists told Bloomberg BNA that high-cost areas are better suited to tinker with a higher minimum wage. “Good economists are scientists, and scientists need evidence and experiments to answer these questions,” Duke's Ananat said. Those experiments should come at the city and state levels, Ananat said, where local governments can serve as “laboratories for democracy.”

Administration Wants $12, With Caveat 

The Obama administration, while switching its official target number several times in recent years, has now settled on $12 as its preferred minimum wage.

Labor Secretary Thomas Perez has been traveling the country in the two years since his confirmation in an effort to advance the president's wage agenda. That work includes stressing the need for higher minimum wages, particularly at the state and local levels.

Perez hasn't specifically backed a $15 federal pay floor, but he has championed Fight for $15 workers. The Labor Secretary met with a group of the campaign's fast-food employees last month in Milwaukee.

Similarly, Democratic presidential candidate Hillary Clinton has proposed a $12 minimum while offering encouragement to the workers' campaign for $15 on several occasions in the past year. Clinton recently picked up an important endorsement from the 2 million-member SEIU.

An SEIU source told Bloomberg BNA in a Dec. 2 e-mail that Clinton's support for a $12 national minimum wage hardly presents a conflict for the union's Fight for $15 drive. The organizing drive has always been more focused on workers making demands of major corporations, such as McDonald's, and has never pushed for a $15 national minimum wage legislation, according to the SEIU source, who requested anonymity because he wasn't authorized to speak with the press.

The source also noted that the $15 demand was not taken seriously in 2012, but has now become reality in a few big cities.

NELP's Sonn said great strides have already been made to overcome some of the fears raised by labor economists.

The University of Chicago poll revealed great uncertainty about how hiking the minimum wage to $15 by 2020 might have an impact on jobs. Sonn said the poll showed, however, that the economists “were evenly divided on the issue—whereas a few years ago, a majority probably would have said that $15 was far too high.”

Still, Shapiro—the former Clinton administration official—and others cautioned that raising the minimum wage isn't a cure-all for pay stagnation and income inequality, no matter how high the rate goes.

“It’s a social policy, it’s not an economic policy,” Shapiro said. “It’s a sound social policy, given the current conditions, but some people may believe that it substitutes for economic policy, and that’s a big mistake. If you don’t take a lot of very serious steps, then the underlying problems with incomes and wages will continue.”
With reporting by Larry Swisher

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com; Chris Opfer in Washington at copfer@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com