The minimum wage is going up in a lot of places, such as New York, Los Angeles, San Francisco, Seatlle and Chicago. Some workers will soon earn a starting wage of $15 per hour, more than double the federal minimum of $7.25.
But the sharp boost in the lowest legal wage is largely unprecedented, and some economist are warning of dire consequences. A new study published by the American Action Forum and Manhattan Institute finds that boosting the minimum wage nationwide to $12 or $15 would end up hurting many of the people it aims to help. Yahoo Finance has an exclusive first look at the research, which finds that a Federal minimum wage increase to $15 per hour would cost the economy 6.6 million jobs and that only 6.7% of the extra $105.4 billion in new wages would go to people in poverty.
“If you raise the minimum wage to $15 per hour, 55 million workers will see their wages affected—we looked at what happens after their wages are affected.”
The study also finds that increasing the minimum wage to $12 per hour would impact 38.3 million workers. 3.8 million jobs would be lost and only 5.8% of income gained would go to workers in poverty.
“There could be quite large shares of workers affected, and research doesn’t have a lot to say about that,” Jared Bernstein of the Center on Budget and Policy Priorities told the New York Times. Bernstein is a former White House economist who has spoken in favor of increasing the minimum wage in the past. The Economist this week issued a warning against higher minimum wages calling them a “reckless wager.”
According to information from the Economic Policy Institute, the majority of those who will be impacted by a raise in minimum wage to just $12 will be white women with at least a high school education.
“The idea was to take these ideas at face value,” says Douglas Holtz-Eakin, president of the American Action Forum, former director of the Congressional Budget Office and economic advisor to President George H.W. Bush.
“It’s a strange story,” says Holtz-Eakin. “We have somebody who otherwise would have been hired and they don’t get a job. The person who keeps their job gets a raise so we’ve essentially taken the money from somebody who is out of work and given it to somebody who has a job.”
Holtz-Eakin believes that over the long term, companies would find ways to permanently scale down their labor force by automation, outsourcing and demanding an increase in productivity.
“If you’re raising the minimum wage in a place like New York City which is already a relatively affluent high-wage area it has a smaller impact than if you raise it in some place that is far less affluent, like a small town in the south.”
As Jared Bernstein points out, economics isn’t an exact science and the effects of raising the minimum wage to $12 or $15 will soon be felt, whether they’re negative or positive. Seven Nobel laureates in economics have proposed an increase in minimum wage saying that there would be little impact on employment when wages are already so low. According to the Center for Economic and Policy Research minimum wage hikes in the past have had no discernable impact on employment.