In a straight party-line vote, the legislature in my home state of Connecticut last week passed a bill raising the minimum wage to fifteen dollars per hour, to be phased in over four years. In committing to do so, it joined a group of states including New Jersey, Illinois, Massachusetts, New York, Maryland, and California.
The discussion of a fifteen-dollar minimum wage has become part of the campaign for the presidency, with Democratic candidates expressing support almost daily. But most states are not on board. Here in Connecticut, loud voices were raised against the measure. In a May 9 Hartford Courant op-ed, Scott Shepard, policy director of the Connecticut-based Yankee Institute—a think tank that advocates “free-market, limited-government” policies—dismissed the proposed hike as “destructive,” “a disaster,” and “terrible news for the working poor.”
Those who take this view typically raise three main points, and Shepard—a lawyer, by the way, not an economist—aired them all: increased labor costs will be passed on to consumers, who may spurn the products; some businesses will close, while others will leave the state; and rampant firings will ensue. The measure will backfire on its intended beneficiaries, Shepard warned: “rather than a pay increase, they’ll be receiving a pink slip.”
The purveyors of these views act as if such assertions are as unchallengeable as the laws of physics. But they aren’t. Recently I interviewed Jamie McDonald, owner of the popular Bear’s Smokehouse restaurants in the Hartford area, who boosted his minimum wage to fifteen dollars two years ago. McDonald says it’s been a great boon to his business. Employees are far less likely to quit, which reduces the cost and aggravation of constant new hiring and training. Morale is up. And customers notice. “It makes sense from a pure business standpoint,” McDonald told me. “Turnover is way down. Customer service has increased. Quality has increased. You could see the difference within a week.”
Anecdotal evidence aside, there’s no shortage of research that challenges the conventional wisdom. A 2017 study by the Institute for Research on Labor and Employment at the University of California assessed the effects of a proposed statewide wage increase to fifteen dollars per hour. It found that 96 percent of the workers who would get increases are over twenty years old, and nearly 60 percent over thirty; these workers, furthermore, earn close to half their family’s income. (So much for the common criticism from conservatives that most minimum-wage earners are young people not helping support a family.) On the cost side, the study found that a portion of the payroll increases would be offset by reduced employee turnover, automation, and increased productivity, while businesses would absorb the rest by increasing prices—by 0.6 percent annually during the five-year phase-in.
Bottom line? “A $15 statewide minimum wage by 2023 would generate a significant increase in earnings for about 5.26 million workers in California while creating a small price increase borne by all consumers.” Testifying before the U.S. House of Representatives Committee on Education and Labor this February, Ben Zipperer, an economist at the Economic Policy Institute, argued that “the bulk of recent economic research on the minimum wage...establishes that prior increases have had little to no negative consequences and instead have meaningfully raised the pay of the low-wage workforce.” (His testimony, with links to supporting studies, is here.)
Lest one worry that such views are limited to progressive think tanks, let me bring in two mainstream Nobel Prize–winning economists. When a 2014 report by the Congressional Budget Office suggested that a minimum-wage hike might cost 500,000 jobs, Columbia professor Joseph Stiglitz disagreed, asserting that “the CBO analysis underestimated the benefits and overestimated the costs.” In a lengthy 2016 essay in Evonomics, Stiglitz argued that “the rising tide [of the economy] has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks,” and proposed significant minimum-wage hikes as one meaningful tool to help ameliorate damaging levels of inequality in the United States. And Stiglitz’s fellow Nobel laureate Paul Krugman cites a well-known study that examined what happens when one state raises its minimum wage and a neighboring state doesn’t. “Does the wage-hiking state lose a large number of jobs?” Krugman asks. “No—the overwhelming conclusion...is that moderate increases in the minimum wage have little or no negative effect on employment.”