Raising minimum wage has its drawbacks

With House Democrats planning a vote this week on a bill more than doubling the federal minimum wage, the nonpartisan Congressional Budget Office has weighed in with a timely estimate of the potential benefits — and costs.

To raise the federal minimum from $7.25 an hour, where it has been for the past 10 years, to $15 an hour over five years, as the Democratic bill would do, would bring a pay increase to 17 million workers whose wages would otherwise be lower than $15 per hour, as well as an additional 10 million lowand moderate-wage workers who would indirectly benefit. Family income for workers below the poverty line would grow by $8 billion, helping to reduce the number of people in poverty by 1.3 million.

However, some 1.3 million low-wage workers who might otherwise have gotten jobs paying less than $15 per hour would go without employment — and the jobloss figure could go as high as 3.7 million in a worst-case scenario.

Neither the benefits the CBO identifies nor the risks seems terribly dramatic in the context of the $21 trillion U.S. economy, with its 160 million-member labor force and median hourly

Family income for workers below the poverty line would grow by $8 billion, helping to reduce the number of people in poverty by 1.3 million. However, some 1.3 million low-wage workers who might otherwise have gotten jobs paying less than $15 per hour would go without employment.

wage of $18.58 in 2018. What the CBO’S report does, or should, remind lawmakers is that there is a trade-off in raising the minimum wage so substantially — and that, while the upside would accrue to society’s most vulnerable, so would the downside. Those who would lose out, in the form of no job at all, would wind up not with less pay but with no pay.

That fact alone argues for proceeding with caution. So, too, does the fact that most of the U.S. workforce already lives in a jurisdiction that has raised the minimum wage above the federal level, with the highest new minimums scheduled for states such as California and New York, where wages and living costs are relatively high to begin with.

If research from University of Massachusetts at Amherst economist Arindrajit Dube is correct, and the optimal minimum wage is 50 to 60% of a given regional labor market’s median hourly wage, then employment in Louisiana, where the median wage was $16.05 an hour in 2018, could be badly hurt by an increase to $15 between now and 2025. Puerto Rico, where a $15 minimum wage, if applied, would equal 150% of the current median wage, according to Bureau of Labor Statistics data, could be devastated.

The federal minimum wage is, indeed, overdue for an update, having lost about 18% of its real value since its last increase in 2009. The smart way to do that, however, is by pegging it to local conditions and then having it automatically grow with inflation going forward — no politics needed. The Third Way think tank has a plan that would set the national minimum wage at “onehalf of the hourly wage for nonsupervisory workers” — that figure in 2019 would be $11.72 — and then allow local levels to vary above or below that depending on living costs.

The Republicancontrolled Senate probably will not act on the House measure. Another advantage of the Third Way proposal, therefore, is to show there is an alternative to that donothing approach, too.