What is the Minimum?
The Effects of a $15 Federal Minimum Wage

Over the past few years, the debate around raising the minimum wage has intensified. Several states and localities have taken their own steps to increase the wage floor in their jurisdictions, but no action has yet been taken by the federal government. In fact, the last raise to the federal minimum wage was enacted July 24, 2009, when the wage was set at $7.25/hour.

As the debate has raged between worker advocates, policy experts, and economists, those of us in the business world have watched with wary eyes. Paying fair compensation is vital, and we all want to justly reward the hours of hard work our teams put in. 

We also have to be extremely conscious of how these policies could affect the overall health and viability of our company: if we can’t afford to pay the people we need, nobody will get paid because we’ll be out of business.

$15/Hour: Seattle Tries Something Bold

In 2014, the city of Seattle made headlines when then-Mayor Ed Murray signed a law raising the city’s minimum wage to $15/hour. That was more than twice the federal minimum wage, and almost $6/hour more than the state minimum wage for Washington ($9.32 at that time). 

Right away, it was obvious Seattle’s move was considered extreme and experimental. Some went further, saying it was dangerous, and would cause all sorts of unintended consequences. According to this CNBC story, both advocates and opponents have ammunition for the argument.

“We thought with higher wages it would be easier to get people to take more hours, but it’s been the opposite,” said Jasmine Donovan, president of Dick’s Drive-In, an iconic Seattle burger joint. She’s referring to the fact that some workers opted to reduce their total hours worked, since the higher wage still allowed for the same total earnings.

Dick’s pays their employees — often students in their 20s — more than minimum wage, even with the increase mandated by law. Employees often start at $17 or $18/hour, and benefits are available. 

Jasmine pointed out that Dick’s had to raise food prices shortly after the wage increase went into effect. That was the first time labor costs alone had prompted a rise in prices for customers, she said. All other price increases had been due to rising costs of purchasing food and ingredients.

At the same time, the increase in wages has been an undeniable boon for many workers in the city. Just how great that boon has been is up for debate, though.

Two university studies — one by the University of Washington in 2017, another from UC Berkeley in 2018 — produced somewhat conflicting conclusions. The UW study showed that while overall wages went up, the number of hours worked declined. That fits in with the experience of Dick’s Drive-In.

The UC Berkeley study, on the other hand, found that wages had risen and that there were not a significant number of jobs lost because of that increase. Additionally, the team from UW released a follow-up report in 2019, showing their findings did not necessarily apply to more experienced workers. Those employees both maintained their jobs (and hours) while also seeing their wages go up.

Taking it National: A $15/Hour Federal Minimum Wage?

As the 2020 election cycle cranked up, more and more national-level politicians took up the idea of the $15/hour federal minimum wage. Many supported it, but, it seemed, just as many opposed it. With effects of the wage unclear in places like Seattle, the debate around implementing the increased wage seemed to have no clear answer.

We can, however, predict some of the effects of such an increase. The Economic Policy Institute produced this report in 2019. It set as its premise the idea of bringing the federal minimum wage up to $15/hour by 2025.

Such a move, the EPI predicted, would raise wages for some 33 million American workers. That number does not represent the number of Americans currently earning the present-day federal minimum wage. The number of those employees in the US sits at around 1.8 million, as of 2017.

More people would be affected, according to the EPI, because a rising “wage floor” would prompt employers to boost wages beyond the new minimum. We know this to be true because of cases like Dick’s in Seattle, where they pay employees several dollars more per hour than the city’s relatively high minimum wage.

Businesses will have to raise wages beyond $15/hour (or whatever level an increased federal minimum wage gets to) because of demand in the labor market. Just as vendors and consumers are locked into the eternal dance of supply and demand, and the resulting variations in prices, so too are employers and employees constantly seeking to find the ideal “middle ground” where the most people can be employed for the most wages.

What Will Be the Cost of $15/Hour?

In short, no one knows for certain. According to this write-up from Vox, discussing the proposed 2019 law which would have gradually raised the federal minimum wage to $15/hour by 2024, there are really only two things economists agree on: a $15/hour minimum wage would increase hourly workers’ pay, and it would result in job losses.

The difficulty has been in determining how severe those job losses would be. Leading up to the 2019 House of Representatives vote on the Raise the Wage Act, the Congressional Budget Office (CBO) released their final estimate of lost jobs: 1.3 million.

Unfortunately, even the CBO’s analysis is very wide-ranging. The 1.3 million figure is actually the median in their range. The upper limit of that range was 3.7 million jobs lost, but the lower limit was virtually zero. In the absence of a more concrete figure from a respected, bi-partisan institution, the muddy waters of debate have only grown muddier.

Some research, such as the UC Berkeley study mentioned earlier, show little or no lost jobs due to a federal minimum wage hike. However, some outlets have predicted losses at least as high as the CBO’s 1.3 million figure — if not greater.

Even the 2020 election hasn’t given business operators a good sense of how the winds are blowing. While the Democratic nominee won, and has pledged support for a national wage hike, Republicans (who typically oppose the raise) might still control the Senate. That means a bill to raise the minimum wage would be unlikely to ever land on the new president’s desk. 

At nGROUP, we make it our business to stay on top of news and topics like this. The minimum wage is just one factor that contributes to the cost of labor. As recruiting and labor management experts, we help our partners navigate through all the changing laws and the newest labor trends. It’s all part of how we help you boost efficiency and profitability.

But there’s more to it than costs. Our specialists focus on building sustainable, positive cultures in every warehouse or distribution center. We know that happy employees are productive employees, and it’s necessary to invest in people to unlock their best performance. Fair compensation is vital to employee satisfaction, so news about a potential hike in the minimum wage is hugely important to us. As 2021 develops, we’ll keep our ears open for more news, , so you don’t have to.