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Who Wins Or Loses If There's An Increase In The Federal Minimum Wage?


The COVID relief bill moving through Congress includes a higher minimum wage. For someone like Lisa Harris, who works in a grocery store outside Richmond, Va., that'd make a big difference.

LISA HARRIS: Being able to afford the things that I need to get by day to day without having to ask anyone, the ability to feel that I am a contributing member to society - I mean, they say thank you and that we're essential and that we're heroes, but we can't feed our families off of being heroes.

INSKEEP: Scaling up from $7.25 an hour to $15 an hour is still running into resistance, though, and testing Democratic unity in Congress. David Wessel is following the debate. He's director of the Hutchins Center at the Brookings Institution. David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: So there's always this case made against raising the minimum wage. We're told that if you raise the minimum wage, employers are just going to hire fewer people. What's the evidence here?

WESSEL: Well, textbook economics says that if you raise the price of something, there's going to be less demand for it - in this case, less demand from employers for low-wage essential workers. Now, the question is how many winners and how many losers? One influential estimate comes from the Congressional Budget Office. They estimate that by 2025, which is when the wage is supposed to get to $15, it would mean 27 million people would be getting a raise, 900,000 fewer people would be in poverty, but 1.4 million fewer people would be working or not having got hired. On the other hand, economist Arin Dube at the University of Massachusetts at Amherst has been looking at what happens when states raise minimum wages, and he argues that the latest evidence suggests that CBO is overestimating the ill effects of raising the wage to 15 bucks.

INSKEEP: OK, so a lot of people benefit, some people may be hurt, but there's an argument over how many people are actually hurt. That's the point of view of the employee. What about the employer? How are business owners affected here?

WESSEL: Well, it would raise their payroll costs, for sure. Now, some employers may discover that they have better workers or less turnover, so it might not hurt them that much. Some would suck it up in the form of lower profits. Some would pass it on to their consumers in the form of higher prices, and some would get by with fewer workers or cut the hours of their workers. It would clearly be very painful for some businesses, and particularly for some businesses like those in the fast-food industry that have already been hit hard by the COVID pandemic. But a really interesting new academic paper that looked at 10,000 McDonald's outlets, many of them in states or cities that have raised the minimum wage, found that nearly all of them raised prices to cover the extra cost. And interestingly, it found that, despite higher labor costs, they didn't - more of them didn't install high-tech touch-screen ordering that potentially saves labor, which suggests that consumers would pay, but workers would benefit as well.

INSKEEP: David, you've referred a couple of times here to the fact that some states have already raised the minimum wage well above what the federal minimum is. When you look at this debate, does it matter what part of the country we're looking at?

WESSEL: It matters a lot. Twenty-nine states and the District of Columbia have set their minimum wages above the federal $7.25 an hour minimum and so have several cities. Raising the minimum wage to $15 an hour across the country would have a huge impact on some states in the South that are paying $7.25 as the minimum wage or a state like West Virginia, where the minimum wage is now $8.75 an hour. That's, of course, politically important because Democrat Senator Joe Manchin has indicated he's against a $15 hour wage, and his opposition could be fatal to the proposal. But a $15 minimum wage would have much less impact in states like California, where it's already set to go to $15. It's $13 now. And in Florida, voters in November approved a referendum that takes their minimum wage to 15 bucks over the next few years no matter what Congress does.

INSKEEP: Anything special about going up to exactly $15 an hour?

WESSEL: Not really. It's politically important. The fact is that the minimum wage has been stuck at $7.25 since 2009. It would be close to $9 an hour if it had kept up with inflation since then.

INSKEEP: David, thanks so much.

WESSEL: You're welcome.

INSKEEP: David Wessel, director of the Hutchins Center at the Brookings Institution. Transcript provided by NPR, Copyright NPR.