As the debate over the minimum wage intensifies, CBS News reports on the early developments of this year's minimum wage hikes. As of January 1st, 2024, 22 states have decided to raise their minimum wage, with an additional 38 cities following suit. Among these states, 12 have chosen to annex their minimum wage to inflation. Despite these changes, the federal minimum wage remains stagnant at $7.25 per hour, a rate that has remained unchanged since 2009.
The CBS news report subsequently presents several reasons why this minimum wage increase may be favorable for workers. The minimum wage increases will supposedly bring $7 billion in additional wages to 9.9 million workers. Moreover, minority groups, such as black and Hispanic workers, are expected to disproportionately benefit from these wage hikes, given that they comprise a notable portion of low-wage workers. This is also said to alleviate the many forms of exploitation that these low-wage workers continue to face.
While this news report suggests that increasing the minimum wage is a necessary policy response to recent inflation, it overlooks the potential downsides of such increases. One of the main benefits reported is the wage gains for 9.9 million workers. The estimated wage gains were found by looking at how many workers earn below the projected new minimum wages. Unfortunately, this assumes that minimum wage workers are static wage earners who would remain at the same wage given there was no minimum wage increase. The available evidence, however, tells a completely different story.
In a 2022 research brief Jeffrey Clemens and Michael R. Strain explain that wage growth among minimum wage earners not only happens but is the norm. To put this into perspective, the study found that 70% of those who were employed within a period of 12 months experienced wage growth. Furthermore, when comparing workers in states that chose not to increase the minimum wage with those in states that did so over a period of 5 years, they find that the likelihood of wage growth among minimum wage earners is comparable in both sets of states.
Approximately 71% of minimum wage workers in states that maintained a consistent minimum wage throughout the 5-year period received a wage hike during that time, in contrast to 79% of minimum wage workers in states where the minimum wage was raised. Consequently, wage boosts for minimum wage earners are customary in both sets of states. Based on this evidence, the share of wage growth attributable to the minimum wage increase, as opposed to organic wage growth, is likely significantly less than the CBS news report initially implied.
If that is not enough to already begin to question the economic viability of this minimum wage hike, consider the fact that the report fails to consider the loss of jobs that would result from forcibly raising the cost of labor. Even more concerning is that 12 of the 22 states raising the minimum wage will index it to inflation. This is particularly concerning because studies have shown that indexing the minimum wage to inflation can increase the magnitude of job loss by almost three times.
Given that such significant consequences of raising the minimum wage are not even mentioned, the soundness of this economic policy is called into question. Considering the complex considerations surrounding minimum wage hikes, it is evident that any policy decisions in this realm must be approached with caution and thorough analysis. While efforts to improve the financial well-being of low-wage workers are commendable, it is essential to carefully weigh the potential benefits against the possible drawbacks, which the CBS news report fails to do.
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