Concerns about raising Pa.’s minimum wage are baseless
One of the debates taking center stage this year in Harrisburg has been over Pennsylvania’s minimum wage law. Gov. Wolf proposed increasing the minimum wage to $12 per hour, with annual 50 cent increases, plateauing at $15 per hour by 2025.
In June, Wolf’s plan was rejected from the 2019 budget agreement for reasons that Senate Majority Leader Jake Corman, RCentre, cited as concerns over “the impact on employers, consumers and employees.”
There just isn’t a viable argument against raising the minimum wage that holds up under scrutiny, and this is affirmed by an expanding body of research. A recent Congressional Budget Office report, for example, makes it clear that the benefits of lifting thousands out of poverty would outweigh whatever the speculative costs may be.
This doesn’t mean that raising the minimum wage would never cause any layoffs. But even if it did, Pennsylvania’s current unemployment rate is 3.9%, a near 50-year low, signaling a strong enough job market to test the waters.
The other concern, that raising the minimum wage will have a negative effect on employers, particularly small businesses, is understandable. It is likely there will be some small businesses that can’t afford to increase their payroll and might consequently shut down. But that’s called capitalism.
It may sound callous, but while we should retain a deep sympathy for small businesses, an enterprise relying solely on the precarity of its workers for profit is not a sustainable business model.
What many businesses don’t realize is that a minimum wage increase could be beneficial to them, because of what’s called the velocity of money (i.e. how fast people spend their income). The people on the lower end of the income distribution spend their money at a very high velocity (anywhere from 80 to 100%). According to a March 2019 report by the Pennsylvania Department of Labor and Industry’s Minimum Wage Advisory Board, there were an estimated 96,300 workers in the state earning minimum wage or less.
The extra money those workers would receive from a minimum wage hike would create new demand for products, and in turn give companies a chance to increase sales from a broader consumer base. Not to mention the copious benefits of worker retention, increased productivity and company morale.
As far as the impact on consumers, while there is some evidence of minimum wages causing slight price increases, it’s not significant. Prices of normal goods, such as the ones produced by minimum wage labor, are mainly a function of resource scarcity — not production costs.
The irony is while Pennsylvania remains at the federal $7.25, it’s one of the first places where researchers discovered that minimum wages don’t harm the economy.
In 1994, Pennsylvania was the subject of a groundbreaking study done by Princeton economists David Card and Alan Krueger on the effect of minimum wages on unemployment. At the time neighboring New Jersey had just raised its minimum wage, so the researchers compared the levels of unemployment in the food service industries of the two states. They found that “despite the increase in wages, full-time-equivalent employment increased in New Jersey relative to Pennsylvania.”
It’s no exaggeration to say that those results sparked an “intellectual revolution” in the field of economics. And since then, all of the states surrounding Pennsylvania have increased their minimum wages.
So although it may seem responsible in Harrisburg to be wary, concerns about raising Pennsylvania’s minimum wage are baseless, as Krueger and Card proved years ago.