Do ‘All the Economics Show’ That a Minimum Wage Increase Will Help the Economy?

No.

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In a recently released clip from his pre-Super Bowl CBS interview, President Joe Biden acknowledged that a $15 minimum wage wouldn’t be included in the $1.9 trillion coronavirus relief package, but he announced his willingness to gradually increase the minimum wage to $15 an hour in a separate effort,   claiming that “all the economics show that if you do that the whole economy rises.”

The current federal minimum wage is $7.25, and while there is widespread support for raising the minimum wage among left-leaning economists and think tanks, such support isn’t as universal as Biden suggests. In 2019, for example, the conservative think tank the Economic Policies Institute published a survey of economists on their support for a $15 minimum wage. EPI performed similar surveys in the past and found similar results—including in 2015, when the survey was performed by the University of New Hampshire Survey Center.

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  1. Avatar photo
    Show Jay Janney the 🚪!

    Many years ago, when I wore a young man's clothes (don't worry, i had his permission to do so). I worked at a supermarket as a "carry out boy". Minimum wage. I bagged groceries, and carried them to the customer's car. 15 years later, those jobs were gone, for many reasons. But among them was that the minimum wage increased to more than the job's value.

    Back then, supermarkets would hire a bunch of teens, and see if they worked out or not. Those who did work out found jobs in other parts of the store, making more money. Every butcher and baker we had began as a carry out boy, as did all the night stockers. Who should not be confused with night stalkers (although one I knew, I wouldn't be surprised if he was both). For those who didn't pan out, unless they stole or harassed a customer, they were rarely fired, mostly just frozen at 10-15 hours a week. Even mediocre ones still added value.

    Too high a minimum wage and those entry level jobs are gone. Owners automate, they reduce service, they find ways. Who loses? Those who are not heading to professional jobs. They find it more difficult.

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  2. Exhausted

    It seems every day multiple people in the administration talk about “good paying UNION jobs”. And given the way they seem subservient to teachers unions it looks like joining a union is the obvious option.

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    David Atkinson

    My post-high school education was only night school at a community college some 40-odd years ago, but I vividly remember the first day of one of my economics teacher's class. He said that we'd be studying, among other topics, the minimum wage law. He then said that his car in the parking lot needed washing, and he'd pay 50 cents to anyone of us to wash it before class the next day. He'd also pay 10 cents if he could ride on the back of a student to take him to the cafeteria for coffee after class. "Any takers? Anyone? Anyone?" Nope. "All of you can pretty much figure out that your labor is worth more than the money that I'm offering, all without having government bureaucrats making the decision for you."

    If a law exists where the government determines the minimum worth of your labor, isn't that kind of a slippery slope for every other economic choice one can make? Before I post a "For Sale" item on, say, Craigslist, should I first have to run it by bureaucrats to see if I'm asking the proper price? Should bureaucrats have a say in the composition of our investment portfolio?

    Another thing I don't like about a standardized labor rate is that there is no such thing as standardized labor. I was a Realtor for about 5 years, and when I first started out I was trying everything to learn about the business and get experience. I'd look at virtually every new listing in person, take classes to learn about subjects such as wetland mitigation and on-site sewer systems, and on and on. I can't tell you how many other new agents would sit at their computer and play solitaire all day, hoping that they'd snag someone coming in the door when it was their turn for floor duty. We'd be in a class to listen to a real estate attorney who was covering the legal aspects of the business, and the guy next to me was doodling little sketches of who-knows-what on his notepad. I'm not picking on real estate - the same thing is universally evident.

    Finally, what is it about $15 per hour being the magic number? If $15 is good, wouldn't $16 be better? If so, then why not $20? $50? A million dollars a year for every citizen? It's like the Soviet Union, with bureaucrats setting prices for everything with no real grasp of supply and demand. Thomas Sowell's "Basic Economics" talks about this in the second chapter "The Role of Prices," using moleskins as an example:

    "Two Soviet economists, Nikolai Shmelev and Vladimir Popov, described a situation in which their government raised the price it would pay for moleskins, leading hunters to get and sell more of them: 'State purchases increased, and now all of the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomtsen twice to lower purchasing prices, but the 'question has not been decided' yet. And this is not surprising. Its members are too busy to decide. They have no time: besides setting prices on these pelts, they have to keep track of another 24 million prices.'"

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    1. Avatar photo
      Pat Riot

      Communism is bad, especially when we allow the products of communist slave labor into our country to compete with our workers, driving their wages down effectively and the end of a Chinese gun barrel.

      So maybe this subject isn't quite as simply as a few lines from a textbook, is what I'm saying...

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  4. Avatar photo
    Storming Norm

    The CBO’s projections also indicated a $15 minimum wage would reduce business income while causing prices to increase, concluding that “the $15 option would reduce total real (inflation-adjusted) family income in 2025 by $9 billion, or 0.1 percent.”

    Interestingly trump's tariffs have cost as much as $86 billion not counting the lost exports due to countervailing tariffs by other countries. This raise seems like a small cost to insure a living standard for workers.
    My queation is: Can this increase be ties proportionately to the COI or other index state by state? Even rural versus urban? Obviously it costs less to live in some areas than others and "the one size fits all" approach will probably cause the damage that is feared by the CBO.

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  5. Keith Hennessey

    Today (M, 8 Feb) CBO released a new analysis of a $15 minimum wage. https://www.cbo.gov/publication/56975

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  6. Counterpoint

    Not my favorite fact check - this is getting into a debate about minimum wage. Is it possible to believe that Biden meant every economic analysis?

    Of course, Ayn Rand would think that raising the minimum wage will force all industrialists to hide in a Wakanda like Libertarian paradise in the mountains. So clearly the meaning can’t be “all”

    Politicians have said say things like “these tax cuts will pay for themselves” or “Trump is the most pro-life president in history.”

    I just don’t see how these kinds of things should be taken literally and fact checked.

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      Aylene Wright

      I also thought this was inappropriate subject matter for a Fact Check. If Biden had said "all the economists" (and I actually suspect he DID mean to say that, but that's not what he said), I would have less of a problem, it's easy to find "economists" who disagree with him.

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  7. Scroop Moth

    We need to discourage the bottom-feeder business models that can’t pay more than $7.50. We can give the hard-to-employ something better in life. Many could hustle and improve their game sufficiently for a $15 job. Employers can improve their management, too. Did you ever sit in a MacDonalds while a supervisor was interviewing applicants at the next table? There’s very little motivation on either side, just a revolving door. Rural wastelands need $15 jobs the most.

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    1. Avatar photo
      Ken in MIA

      "Many could hustle and improve their game sufficiently for a $15 job."

      Many could but refuse.

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      1. Joe1776

        And also many can't. My grandmother worked I think into her 80s. She worked her whole life and likely could survive without working so long. But she liked to work and also liked the extra money. Just because she wasn't getting paid 15 dollars an hour she appreciated having the job and her employer appreciated having her. There was nothing so immoral about the situation that our government needs to outlaw it.

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    Ms. SSM

    Seems like a fair trade off. Raise it.

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  9. Avatar photo
    DougAz

    Oregon implemented a rising minimum wage about 6 years ago. As minimum wages increased, unemployment fell every year until Covid hit.

    A. The minimum wage does not effect unemployment.
    B. Revenue and customer reduction cause business layoffs
    C. The labor input cost at the level of decision making of a business is very small. All of this is trivial and passed along in minor price adjustments.

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    1. Geezing Harry

      Just to address claim A:
      Oregon Senate Bill 1532 established a series of minimum wage hikes from 2016 through 2022. From a standard of $9.25 on Jan 1, it set a raises every July 1, beginning in 2016 with $9.75. What DougAZ said is true, well sort of. According to the U.S. Bureau of Labor Statistics, seasonally adjusted NATIONAL unemployment actually fell during that same period! (One state's minimum wage law affected the entire country? Cool!) Actually, that NATIONAL trend in unemployment began in the 2009-2010 period.

      This may be nothing more than the correlation vs causation fallacy.

      Congressional Budget Office research conclusions: Their 2019 report forecast job losses of 0 to 100,000 for a $10 minimum wage, up to 1.3M jobs lost to a $15 minimum wage.

      https://www.cbo.gov/system/files/2019-07/CBO-55410-MinimumWage2019.pdf

      I don't pretend to be an economist, but wanted to provide some context to provide balance.

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      1. P Satter

        As an Oregonian, I would like to point one thing out that is an important difference from this proposed bill. We do not even have the same rate within our own state. Why? Because "Portland Metro" "Standard" and "Non urban" refer to different areas within the state that have very different costs of living and therefore have three different minimum wages. Whether rates need to be raised in a particular area is a very fair question. But making the exact same rate across the entire country--rural Alabama to San Francisco--makes no sense to me.

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      Ken in MIA

      Magical thinking.

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  10. Avatar photo
    Victor Clairmont

    Yup Alec. There is no free policies, only trade offs.

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