The negative economic tradeoffs of minimum wage hikes cancel out paycheck gains, according to a new report published by the Competitive Enterprise Institute (CEI).
“A minimum wage hike may produce an immediate wage hike for many of the 2.2 percent of hourly workers who are impacted, but the higher labor costs force employers to cut non-wage benefits, like free meals, flexible leave arrangements, and health insurance coverage,” said Ryan Young, CEI senior fellow and author of the report. “The negative economic tradeoffs for minimum wage workers, unfortunately, cancel out most of the paycheck gains.”
In an effort to afford higher wage costs and avoid layoffs, employers make cuts in non-wage benefits that effectively cancel out actual wage gains, the study found.
Increasing the minimum wage also leads to fewer choices for employees, Young argues. Employees are forced to choose between one job that may pay more and offer less benefits versus less paying jobs that offer untaxed, non-wage benefits like flexible leave, tips, health insurance coverage, and employee discounts, the report found.
Minimum wage increases also tend to favor labor unions over non-union workers, CEI notes, and large corporations over small businesses, because they are less able to absorb the higher costs.
The report also delves into the economics and ethics of having a minimum wage and offers a section-by-section analysis of the Raise the Wage Act (H.R. 582), passed by the House in July. The bill proposes increasing the federal minimum wage from $7.25 per hour to $15 per hour over a seven-year period.
U.S. Sen. Bernie Sanders, I-Vt., who introduced a similar measure in 2017, said the idea of a $15 minimum wage has become a "grass-roots movement of millions. It is not a radical idea to say a job should lift you out of poverty, not keep you in it."
The federal minimum wage has been $7.25 per hour since 2009. The 10 years since is the longest stretch without an increase since the first federal minimum wage was implemented in 1938.
In 2016, 2.2 percent of hourly workers earned the federal minimum wage. An increase to $15 would raise that figure to as high as 44 percent of hourly workers in 2019, or roughly 25 percent of all workers, according to the report. This percentage would decrease each year as economic growth and inflation increase both the real and nominal wages workers earn, Young projects.
Several polls gauging public opinion from 2013 through 2019 record more than 50 percent of surveyed voters expressing support for a $15 minimum wage, with higher percentages supporting a smaller increase. None of the polls mention tradeoffs, Young notes, “which almost certainly skews the results in favor of an increase.”
Polls of economists show the opposite trend. Economists at universities, several Federal Reserve Banks, and the Heritage Foundation also say the minimum wage has statistically not helped low-income families get out of poverty.
Economists at NFIB say if the Raise the Wage Act were implemented it would have catastrophic effects, directly reducing “private sector employment by over 1.6 million jobs and produce a cumulative U.S. real output loss of more than $2 trillion.”
NFIB estimates it would create a cumulative real GDP loss exceeding $980 billion over 10 years. Americans would also have $103 billion less in disposable personal income by 2029, NFIB adds.
CEI encourages employees to weigh the tradeoffs and benefits of a minimum wage.
Tradeoffs include, but are not limited to, differing regional impacts, layoffs, reduced non- wage compensation, a tax increase for low-income workers, fewer job openings, longer job searches, reduced hours, stricter policies for arriving late or leaving early, increased automation, higher insurance co-pays, less vacation and personal time, reduced or eliminated on-the-job perks, reduced employee discounts, less flexible hours, higher consumer prices, more outsourcing, higher youth unemployment, fewer minority workers hired, more abusive behavior by bosses, and higher crime rates, according to the report.
In 2019, 19 states increased their minimum wage rates.
According to the Economic Policy Institute, 5.3 million workers will have their pay rates increase this year as a result of the numerous minimum wage hikes that went into effect Jan. 1. The institute projects the rate increases will result in an extra $5.4 billion worth of pay, on average $90 to $1,300 per year-round employee, depending on the state.