What to Do with the Minimum Wage: Counter Arguments (Part Two)

By Daniel Sperling

The previous blog post What to Do with the Minimum Wage: Pro Arguments (Part One), discussed the history behind minimum wage law as well as the proponents of a minimum wage increase and their respective arguments for increasing the minimum wage. This blog post will address the arguments against increasing the minimum wage while analyzing the overall complexity of the debate on minimum wage.

Just as there are a host of arguments outlined in favor of increasing the minimum wage, there are also many arguments in opposition to any minimum wage increase. The Congressional Budget Office argued that while a minimum wage increase would benefit some families by raising their household income above the federal poverty threshold, it would also eliminate many jobs. In 2012 the Economic Policy Institute estimated that nearly 800,000 jobs could be lost as a result of a minimum wage increase. The Congressional Budget Office’s report estimated that an increase of the federal minimum wage from the current rate of $7.25 an hour to $10.10 would eliminate 500,000 jobs across the labor market, although it would increase the wages of 16.5 million workers. Similarly, the Congressional Budget Office projected that an increase in the minimum wage rate to $9 could eliminate 100,000 jobs, but increase the wages of 7.6 million workers.

In fact, an increase in the minimum wage may actually hurt, rather than help, low-income workers for several reasons. First, former CEO of McDonalds Ed Rensi argued that any increase in wages would be matched by an increase in inflation, essentially counteracting the additional income earned by workers if the minimum wage increased. An increase in the minimum wage may also result in increased wages across the board for workers of all levels. As a result, management could spread the cost in increased wages to the consumers of their goods by increasing prices. In turn, the very workers whom the increase in minimum wage was intended to benefit could face higher costs of living. Also if the minimum wage increases but the wages of more skilled workers remain stagnant, more skilled workers could be incentivized to take positions that were usually filled by younger underqualified workers. This would prevent younger underqualified workers from gaining vital work experience and resultantly hurt those workers who the minimum wage increase sought to benefit.

While the direct impact of a minimum wage increase could benefit as many as 35,000,000 workers, the potential increase to overall wages and cost-spreading tactics of management could negate the benefits entirely or, at the very least, substantially mitigate them. That being said, it is extremely difficult to predict what the overall implications of a minimum wage increase would be. This is not to say that wages should or should not increase, but rather that the argument is highly complicated.

Despite this uncertainty, some states and localities have adopted legislation to meet the growing demands for an increase in minimum wage. In April 2016, California signed new legislation that will raise the minimum wage incrementally to $15 in the state by 2022. New York passed legislation to ensure a $15 minimum wage by the end of 2018. Cities, such as Seattle, also increased their minimum wage. Given the fact that most of these increases were recently passed or are just beginning to take effect this year, only time will tell which side or sides of the debate on the minimum wage were right and wrong.