The Wrong Focus: A Higher Minimum Wage Won’t Tackle Systematic Social Inequality

Policy enthusiasts have been gripped in a droning debate on the minimum wage, but there are better ways to help low-income workers.

Policy enthusiasts have been gripped in a droning debate on the minimum wage- but there are more important ways of helping low-income workers.

Congress voted in favour of the ‘Raise the Wage’ Act a year ago, on July 16th 2019. The Act will gradually increase the federal minimum wage, to $15-an-hour.

Majority Leader declared the motion a “responsible way to restore the value of the [minimum] wage”. Its co-sponsors believe it will give “33 million Americans” a pay increase and “stimulate further economic growth”. 

This was a major achievement for the Democratic party’s left-wing faction. In the 2016 primaries many senior Democrats openly criticised the policy, instead favouring more targeted wage subsidies. Hillary Clinton, then the most prominent Democrat, received condemnation from Senator Bernie Sanders, for being reluctant to adopt the policy. Mrs Clinton deemed it infeasible. In 2020 a $15-an-hour minimum wage is as central to the Democrats’ agenda as welfare reform was to President Clinton’s.

But such optimistic rhetoric masks a major issue with the Act. It received almost no cross-party support: of the 231 members who voted for the bill, just 3 were Republicans. Senate Republicans have since refused to endorse the motion in the Senate.

In April 2016 California’s governor Jerry Brown signed similar legislation for California, raising the minimum wage to $15, in a state notorious for its progressive social policy.

Mr Brown, a social democrat, declared it morally imperative that the state enacts such a policy. A high minimum wage “binds the community together”, he told an audience of activists to rapturous applause.

A higher minimum wage is no longer a niche idea: advocating a $15 dollar-an-hour “living wage” has become a well-documented principle of the American left. A new wave of self-professed “democratic socialists” believe this measure is vital in securing greater economic justice. But perhaps most striking is how wide-spread support for the policy is, even as a global pandemic has threatened the nation with mass unemployment. Most candidates for the Democratic nomination were staunch champions of the proposal.

Covid-19 has catalysed a seismic rethink of how America treats its low-income workers. Such a rethink is long overdue. According to Pew Research Centre, average purchasing power “barely bugged” in the decade after the Recovery, despite rapid economic growth. Pew also found most gains in wages went to the highest earners, exacerbating wealth inequality. The covid lockdown has worsened matters; unemployment rose to over 11% as companies lost revenue, leaving a lasting scar on the economy.

Addressing these flaws in the labour market is vital in regenerating the nation’s struggling economy, but prioritising minimum-wage increases would be a mistake.

According to the Congressional Budget Office, a nonpartisan organisation, increasing the minimum wage would have both positive and negative implications. 

The report found that a $15-an-hour minimum wage (as Bernie Sanders and others have advocated) would improve social mobility by increasing the wages of 17 million workers. This is a desirable outcome: increased wages usher greater consumer spending- possibly improving employment prospects of workers earning above $15 an hour.

There are two major drawbacks to this proposal. Average wages are often lower than the proposed $15 benchmark. Mississippi, for example, has an average wage of just $14.69. Raising the minimum wage to above this level could increase unemployment in low-wage states, as small businesses may struggle to afford the greater costs.

Rising operating costs would likely cause many low-profit businesses to increase prices, according to Forbes. Consumer spending would decline, undermining any gains in economic stimulus. 

Advocates dispute this claim. Many progressive wonks have even argued the policy would boost entrepreneurship by giving low-earners more financial resources. Unemployment would likely decrease, they argue.

A $15-an-hour minimum wage is also infeasible in the current hyper-partisan climate. Given the concerted effort Republicans made to oppose Obamacare, it is unlikely those same loyalists would support a large increase in the minimum wage. The policy’s association with out-right socialists doesn’t help.

Even if Democrats regain the presidency and Senate, the partisan slandering would make implementation a gruesome fight. Given that twenty-seven million Americans lack health coverage, healthcare reform would likely be a far more pressing issue.

Moreover, the looming threat of climate change means minimum-wage policy will have to take a backseat in the fight for a cleaner planet.

Democrats are right to raise concerns over the state of the workforce. Washington’s failure to implement sizable reform has left millions of workers behind. The rise of populism reveals a widespread desire for change.

A higher minimum wage might be a sensible policy. But tackling the systemic inequalities must take precedence. Policy wonks must prioritise more substantial reforms.

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Policy enthusiasts have been gripped in a droning debate on the minimum wage, but there are better ways to help low-income workers.