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A $15 federal minimum wage could be on the horizon but economists are mixed on how it may pass and its impact

Business Insider logo Business Insider 2/5/2021 esnodgrass@businessinsider.com (Erin Snodgrass)
Demonstrators protest the Federal Reserve Bank about $15 minimum wage in New York City, on July 20, 2020 Tayfun Coskun/Anadolu Agency/Getty Images © Tayfun Coskun/Anadolu Agency/Getty Images Demonstrators protest the Federal Reserve Bank about $15 minimum wage in New York City, on July 20, 2020 Tayfun Coskun/Anadolu Agency/Getty Images
  • Democrats are making a big push to increase the federal minimum wage to $15 an hour.
  • They want to pass the measure without Republican support, through budget reconciliation.
  • Economists are mixed about the raise's potential impact on the economy, especially during the pandemic.
  • Visit the Business section of Insider for more stories.

More than a decade since the last federal minimum wage increase, the country could be on track to see more than a doubling of the current rate by the year 2025, but only if Democrats can get the measure passed.

As part of President Joe Biden's $1.9 trillion stimulus plan, he included a measure to raise the minimum wage from its current $7.25 to $15 an hour. Then last week, Democrats introduced the Raise the Wage Act of 2021, a separate bill proposal that would increase the rate to $15 an hour gradually by 2025. 

Democrats say the increase would give nearly 32 million Americans a raise while also directly targeting many of the essential workers who have been on the front lines of the pandemic in low-wage jobs. The House of Representatives passed an earlier version of the bill in 2019, but it never saw a vote in the Republican-controlled Senate at the time.

Ben Zipperer, an economist at the Economic Policy Institute, said minimum wage raises are exceptionally popular among the public. A 2019 Pew Research Survey found that two-thirds of Americans supported raising the minimum wage to $15.

"When we see minimum wages actually put to a direct vote, say on a ballot proposal in a state, they overwhelmingly pass," Zipperer said.

Though a number of states and cities have raised their own minimum wage in past years, the federal government hasn't issued a national raise since 2009 - the last time Democrats controlled both chambers of Congress and the presidency.

"This sounds kind of blunt, but the main obstacle is Republican legislators," Zipperer said. 

Some Republican lawmakers have signaled support for adjusting the federal rate, though few support going as high as $15. 

Sen. Susan Collins told reporters last week that she supported raising the minimum wage, though not as part of a COVID-19 relief bill and not to $15.

Now that Democrats have, albeit narrow, control over Congress and the presidency, lawmakers are eager to make the raise a reality - and fast.

Democrats want to pass the measure through budget reconciliation, a quicker process that doesn't require Republican support

On Tuesday, the Senate voted along party lines to kick off the budget-reconciliation process, a special legislation maneuver that allows the majority party to speed through high-priority fiscal legislation without support from the minority party. Democrats could pass Biden's plan with only 51 votes - all 50 Democrats plus Vice President Kamala Harris's tie-breaking vote - instead of the 60-vote supermajority usually required for most bills.

They wouldn't be able to afford even one lost vote within the coalition, which could prove a challenge, as Sen. Joe Manchin of West Virginia has said he doesn't support a $15 minimum wage, and has said he wants bipartisan agreement on the stimulus package.

The other problem? It's still not clear if lawmakers can even raise the federal minimum wage this way.

Reconciliation can only be used to pass bills that impact the government's spending, revenues, and debt-limit laws. 

One report found that an increased minimum wage could have a significant impact on the federal budget

Zipperer said the uncertainties surrounding the possibility of passing minimum wage legislation through budget reconciliation motivated him, along with a team of fellow economists at EPI, to look at the possible effects of a raised minimum wage on the federal government. 

The team published a report Tuesday titled "A $15 minimum wage would have significant and direct effects on the federal budget." In it, the economists tied together various existing research that shows raising the minimum wage would likely significantly reduce the amount of government spending on public assistance programs by billions of dollars.


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"When you raise the minimum wage, what you're doing, and I think research is fairly clear on this, is that you raise the amount of wages that are earned by the overall low-wage workforce," Zipperer said.

Because low-wage workers would be earning more, they would be less eligible for a lot of public assistance programs, like low-income tax credits or the Supplemental Nutrition Assistance Program, which provides benefits to supplement food costs for families in need, according to Zipperer. So by increasing the minimum wage, the country then reduces government expenditures on those programs, thus impacting the federal budget.

Zipperer said he hopes the study might provide the necessary proof to make increasing the minimum wage through budget reconciliation possible. 

"I think a national minimum wage increase is well overdue and would do an enormous amount of good for the low-wage workforce, so anything that helps move that along is a good thing in my book," he said.

But some other economists disagree with using reconciliation

Rachel Greszler, a research fellow in economics at the conservative-leaning Heritage Foundation said raising the rate through budget reconciliation isn't a credible way to pass the measure.

"If federal policymakers think that it's their purview to pose something across the entire US, then I think that should go through the regular process," Greszler said.

She said the issue of minimum wages should be left up to individual states and localities because of significant variances in costs of living across the country. 

Greszler said when one city wants to impose a $15 minimum wage, people who may lose their jobs or hours as a result, can still go outside the city limits to find work.

"This is a whole new ballgame talking about the entire United States," Greszler said. "And I really just think it should be left to the state and local issue."

Other economists say the timing couldn't be worse for a national raise

Stan Veuger, a resident scholar in economics at the American Enterprise Institute, said the current economic downturn caused by the pandemic means it's not a great time to try and raise wages across the country.

"We went through the same thing during the Great Recession when a number of minimum wage increases that had been legislated during the Bush Administration kicked in as we were going through a deep downturn," Veuger said.

One study revealed there were significant job losses following the increases, which Veuger said makes sense.

"You're in a downturn, so everyone's output is a little bit lower, so you don't want to pay the same wages you would pay during a high-output period," he said. "People won't hire as many additional workers as they would otherwise.

According to Veuger, we're in the same situation now. In addition, this current pandemic-spurred downturn is particularly concentrated in businesses that pay relatively low wages, like hospitality and foodservice. He said the current unemployment numbers understate how many jobs are actually at risk of being lost forever if an increased minimum wage was imposed.

Greszler agreed, and called the proposed increase a naive approach to trying to increase incomes among lower-wage workers.

"I think this is the worst time and the worst scenario when you look at how the COVID-19 pandemic has impacted our labor market," she said. "And it's exactly the industries that employ the highest proportion of low-wage workers."

Many such businesses have already reduced their employment by between 20% and 30% between December 2019 and December of 2020, according to Greszler. 

"They are struggling to stay afloat. It's not like they're reaping in the profits and they have money they can just pull from to account for these cost increases, and yet they can't jack up their prices significantly," she said. "They just have very few options.

But proponents of the increase say many of the opposition's fears are exaggerated and argue the benefits far outweigh potential negatives

Zipperer said fears about job losses are slightly overblown. He acknowledged people's concerns that raising the minimum wage could make it more expensive for businesses to hire workers which could result in fewer jobs for low-wage workers, in turn hurting the people who need to be helped, but said that would ultimately be unlikely to happen. 

"I think that story is kind of theoretically possible, but in the real world, that's not actually what happens when you raise the minimum wage," Zipperer said. "We have a lot of evidence, economic research that shows the effects of the minimum wage on employment are actually pretty small to nonexistent."

Last month, Treasury Secretary Janet Yellen told Congress that raising the minimum wage would have minimal, if any, impact on jobs.

An independent analysis by the Economic Policy Institute found the raise would be particularly beneficial to people of color and women. Nearly a third of African-Americans and a quarter of Latinos would get a raise if the proposal was employed and nearly 1 in 4 of those who directly benefited would be Black or Latino women, according to the study.

"Whatever the employment effects are, they're small enough that they're kind of swamped by there's more money for low wage workers," Zipperer said.

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