One of the most pressing issues of our time is the lack of bargaining power held by labor. The two factors of production are labor and capital. These are costs of business, so employers will want to avoid putting much money into them. Additionally, markets and wealth have been getting increasingly concentrated, with large corporations controlling much of the labor market. This power and wealth gives these employers huge control over how much they spend on labor. After all, the cost of an employee losing their job is far greater than the cost of a large corporation losing a few employees. Often, employees don’t have the option to abstain from work in search of a more competitive wage. This imbalance of power is a big problem, since unlike capital, labor consists of real people, not inanimate objects and assets. Thus, a lack of investment into labor has a huge negative impact on human prosperity. This problem can be solved by regulations which create bargaining power for labor. One of the most popular approaches to this is raising the minimum wage.
I am a strong proponent of a significantly higher minimum wage than our current $7.25, ideally a phased in $15 minimum (I'll get into the policy specifics further down). Raising the minimum wage is a balancing act between pulling people out of poverty and dealing with the inevitable issues with unemployment and a disparity between small businesses and large corporations. However, based on my research, it seems that the negative effects on employment are very disputed between different studies, with a large amount of the unemployment being allocated to teenagers, who are far less likely to need the jobs to survive. Many studies on this actually indicate a negligible increase to unemployment, although these studies generally only cover small or local increases to the wage. These studies are conducted in different areas, which vary greatly in economic conditions; San Francisco would naturally require a higher minimum wage than Raleigh. Thus, we need to aggregate the research and use an equalizing measurement that accounts for these differences. Leading labor economist Arindrajit Dube has done exactly that; according to his research, minimum wage can reach up to 60 percent of the median wage in a given area. Past this point, it generally causes unemployment issues. This threshold is not met in most areas of the US.
The positive impacts of a large wage hike are universally accepted and hugely beneficial; over time, it would pull millions out of poverty. Some studies estimate a 20-40% drop in the poverty rate, as well as substantially greater income at the bottom of the ladder. Phasing in a $15 minimum wage by 2025 would life the pay of over 32 million workers, 19 million of which are front line/essential. Economically marginalized groups such as African Americans and Latinos would benefit the most. This also leads to likely benefits for the economy, as having so many people with significantly increased spending power, most of whom were previously below the poverty line and so could not splurge much at all on amenities, would lead to increased circulation of money through the economy.
Many on the right claim that a minimum wage is not necessary, much less an increased one, due to the idea that the markets will dictate fair wages. This is based around the concept that in a competitive market, a business with wages that don't match up to those of businesses around them will fail to attract workers, and that an unfair wage will drive away workers. These are basic laws of supply and demand that apply to most sectors of the market, but do not seem to apply the same way to the labor market. This is due to the monopsony effect, which occurs when a buyer of a particular good or service has a disproportionate market share. This happens in the labor market because a worker selling their labor in order to survive has far less bargaining power than a producer of a different type of good or service. Working a full time job is necessary to have a basic standard of living (and in many cases still does not achieve that), so individual low skill workers will not have the ability to bargain with large, wealthy corporations who scoop up boatloads of workers for their massive operations. These same large firms have far more bargaining power in the sectors where they produce goods and services, because their large-scale operations allow for much more flexibility with raising or lowering prices in response to market forces. This is why the aggregation of studies on this matter tend to find a negligible impact on employment.
Meta analyses conducted in 2015 and 2019 have found that there is little evidence of a substantial effect on employment, although this changes if the wage is raised by too much. This reflects the changing opinions of economists over time. Recent polling has shown that a large majority of economists dismiss the idea that the minimum wage disrupts employment in a negative way.
Additionally, even if there'd be a noticeable amount of displaced workers, other progressive measures such as a strong welfare state would take care of them, preventing an economic shock. Another concern is that forcing businesses to raise the wages of employees will result in the reduction of other forms of pay, such as healthcare benefits. Instead of viewing this as an argument against the minimum wage, this should been seen as the 1000th reason why America needs universal healthcare.
Despite all of this, it is an unfortunate fact that a $15/hr minimum wage, which is the main goal for progressives, is not suited for a great deal of the US. In an ideal world, labor policy would put heavier emphasis on municipal wage hikes, as well as strong unions. In most areas, 15 dollars/hr is above the aforementioned threshold for an safe minimum wage. In fact, a 15 dollar minimum wage would be disastrous in the poorer localities of the US. Entire states like Louisiana, Arkansas, Iowa, etc. have median wages which barely exceed $15. In 30 states, the median wage is less than $19. Even in these states, there are still metros where the median wage is far higher, and therein lies the issue: there is too much diversity in the affluence of different localities for a large federal minimum wage to be economically safe nationwide. Thus, the best way to improve the conditions of workers nationwide is to use more targeted means.
The first way to achieve this is to raise minimum wages on a municipal level, so that different areas can adjust it to an extent that is safe for them. Now, this obviously seems much less practical, as this involves hundreds of different legislative efforts as opposed to one federal move. Also, despite the fact that the minimum wage is popular, many Republican controlled localities would never raise it. There are ways to address this, though. Raising the minimum wage, even to $15, is incredibly popular in both red and blue states. As such, we have already seen victories on the local front; 24 states and 48 cities/counties have raised their minimum wages. In Florida (which has Republican state & local governments), a ballot initiative to raise the state minimum wage from $8.56 to $15 per hour by 2026 passed with the support of more than 60% of voters. Although there has been limited success in more uniformly rural, Republican areas, the polling shows that ballot initiatives in most of these areas should be fairly popular.
The second and more practical solution is to design a very targeted and complicated $15/hr federal minimum wage act. This might include setting the wage at 60% of the median wage in all states or even counties, and then indexing it to the median. Phasing in the $15 minimum over the course of multiple years is also a great option, one that Democrats have already adopted; this would be improved by making the phase in longer for small businesses, This tweak has already been implemented in Seattle. With these adjustments, a $15 minimum wage is not as unsafe as it might sound. Its positive effects are massive, and any concerns about unemployment can be minimized by smart implementation and a welfare state which adequately supports those who might be negatively affected.
Sources:
Studies
Proposal 13: Designing Thoughtful Minimum Wage Policy at the State and Local Levels
15 Years of Research on US Employment and the Minimum Wage by Paul J. Wolfson, Dale Belman :: SSRN
Impacts of minimum wages: review of the international evidence
Minimum Wage Employment Effects and Labor Market Concentration
The Distributional Effect of Minimum Wages: Evidence for Linked Survey and Administrative Data
Why Does the Minimum Wage Have No Discernible Effect on Employment?
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