$15 minimum Wage Without Job Loss
Jeannette Wicks-Lim, says that the fast-food industry could absorb the increase in its overall wage bill without resorting to cuts in their employment levels
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to the Real News Network. I’m Sharmini Peries coming to you from Baltimore.
On Tuesday, October 13, in Boston, Massachusetts, the state legislators were debating a number of bills related to labor. During this debate low-wage workers filled the statehouse legislature, demanding that the minimum wage be raised to $15 an hour. Despite pushback from corporations against a $15 minimum wage, saying it’s too costly and it contributes to job loss, our next guest Jeannette Wicks-Lim argues that larger retailers can adjust to a $15 minimum wage without shedding jobs and without reducing the profit margin.
Now joining me is Jeanette Wicks-Lim. She has been giving testimony based on her research on proposed legislation in both Massachusetts and New York, and today she’s joining us from Amherst. Jeanette Wicks-Lim is an assistant researcher professor at the Political Economy Research Institute at the University of Massachusetts, Amherst. She has co-authored a paper with Robert Pollin titled A $15 U.S. Minimum Wage: How The Fast Food Industry Could Adjust Without Shedding Jobs.
Thank you so much for joining me today, Jeanette.
JEANETTE WICKS-LIM: Hi, thanks for having me.
PERIES: So Jeanette, legislating from $7.25 to $15 seems like a great big jump, and the main concern of industries is that increasing the minimum wage to $15 an hour leads to a loss in jobs in the affected areas. You argue otherwise. So how can the industry absorb the higher wage without cutting the workforce?
WICKS-LIM: Right. The proposal for a $15 minimum wage does feel like a large jump because we’re operating from a federal minimum wage of $7.25 across the country. There are a couple things to keep in mind, is that the $7.25 federal minimum wage was passed in 2007. So it’s been quite a bit of time since we’ve seen that minimum wage rise. And also, historically speaking, we’re looking at a federal minimum wage that’s quite a bit lower than what it has been in our past. Probably a number that a lot of people have heard is that the peak value of the federal minimum wage was between $10-$11 an hour back in 1968.
So just to put that in perspective, in terms of how businesses would adjust to a $15 minimum wage, this is something that as you mentioned Robert Pollin and I looked at very carefully. Specifically looking at the fast food industry, because this is where a lot of the campaigns are targeting and also this is where you find a large share of low-wage workers. And what we did is we looked back on past research to see how businesses have adjusted to past minimum wage hikes. And we found that there are a variety of ways that businesses adjust. They do things like raise prices modestly to cover some of the costs. They find that their workers stay at their jobs longer, so they find that their worker turnover goes down, so they actually experience some cost savings because they don’t have to go out and recruit and train new workers as frequently. We also know that when businesses are operating in a healthy, growing economy, that revenue will grow over time simply because the economy is growing over time. And some of that revenue growth can be distributed in a little bit more equally, so that they go towards paying for the raises for the lowest-wage workers.
So those are some of the key ways that businesses can adjust to minimum wage hikes. And we, when we looked–when we researched this question for our paper we tried to look at actual estimates of how these adjustments occur so that we could think about, well, what kind of a proposal would be reasonable for businesses to adjust to a $15 minimum wage, how much time would it take, what kind of price increases are we talking about? And we wanted to avoid, of course, employment losses, and we also, just because we know how industries operate, we assumed that the profit rate would stay the same. So we proposed a four-year time period by which fast food businesses could adjust to a $15 minimum wage, implementing the kinds of adjustments I just talked about. The price increase, productivity improvements by lower worker turnover, and also by using revenue growth from operating in a healthy economy.
PERIES: Now, Jeanette, one of the most popular ways to discourage consumers from supporting the $15 minimum wage is to indicate or make public that prices will go up. What kind of price increases are we really talking about? Give us an example.
WICKS-LIM: Right. So now, looking at the national picture, what we estimated was that a price increase of about 3 percent per year over four years would do a good job of covering a lot of the cost to a minimum wage hike. Again, there are other adjustments that firms can make. But you know, if you want to think about what would that mean for the consumer, you were looking at a Big Mac say, being offered right now, at $4.80, rising over four years at $0.15 per year so that by the time you got done with the minimum wage hike all the way up to $15, you’re looking at the Big Mac costing about $5.40.
So it’s, you know, not totally–it’s a price increase that people may notice. So you might see some demand go down in terms of consumers’ demand for the product, which we account for in our study. But you won’t have it go down by so much that the business can’t actually see their revenue still increase by the price hike. So those are the kinds of price increases that we’re talking about. They’re on the order of about 3 percent per year over four years.
PERIES: Now, one of the other most popular ways of trying to discourage the $15 minimum wage is people often argue that this minimum wage of $7.25 is really for those just entering the workforce. For example, teenagers working at McDonald’s. But lots of research shows that more and more families are relying on that income for survival. What are your thoughts on that, and did you look into that issue?
WICKS-LIM: For this particular study I didn’t. But the thing that I really think is important to remember is that you know, again, thinking back in the history of the way the U.S. economy has operated, in 1968 we had a minimum wage that was well over $10 an hour, and that was for every worker. That would be a teenager starting on his or her first job. That would be a single mom. That would be a secondary earner in a household, that could be the primary earner in a household. But the labor standard was over $10 an hour as the minimum wage across the country.
So the U.S. economy hasn’t stayed–is not the same place it was in 1968. Now we have a U.S. economy that produces more than double what it used to in 1968, and that’s even after accounting for population growth. You have workers that are more than twice as productive as they were in 1968. You also have a better-educated low-wage workforce. If you look at the percent of low-wage workers that had more than a high school degree back in before, around 1968, you’re talking about less than a quarter of the workforce, low-wage workers, having more than a high school degree. Now you have more than 40 percent with more than a high school degree.
So you have better-skilled, better-educated workers. You have a much more productive economy. You have more goods and services being produced per person in the U.S., and yet we have a federal minimum wage at $7.25, which is quite a large decline. We’re talking about, in real value terms, it’s quite a large decline from where we were in 1968.
Part of what’s happening is that our economy is growing, but what’s being–and everybody kind of knows this now, is that we have a large degree of income inequality. We’ve seen the highest wage earners pull away from the rest of the workforce in terms of having larger wage growth. And you have workers at the bottom basically staying stagnant or falling. So it’s not so much what can our economy do and what a teenager, say, or a single mom, or a primary earner or a secondary earner should be earning at their job. It’s really looking at our labor standards and whether or not they’re keeping up with what our [used] economy can produce. And clearly our wage standard has fallen away so that the minimum wage doesn’t reflect what we could provide for our lowest-paid workers.
PERIES: You seem to be getting some attention, of legislators actually listening to it. And as well we know that in California they have recently adopted a $15 minimum wage as well. So now that you’re getting the attention of lawmakers, what are the kinds of questions they are asking you to make their determinations?
WICKS-LIM: Well, I think we’re really getting to the point of, now that we’re talking about a $15 minimum wage, thinking about how do you implement a proposal like that where you can really maximize the benefits for the low-wage workforce and minimize the cost to businesses? That is, allowing them to adjust to these new labor standards over a reasonable amount of time. So it’s really a question now of looking at what businesses are affected, and how many workers are affected. What kind of growth are these businesses experiencing right now, how could they accommodate the $15 minimum wage over what period of time.
That’s the kind of thing that I’ve been trying to do in my testimony, is to look at for example in Massachusetts, the measure that’s going to cover, that’s being debated, is to cover fast food chains and big box retailers, looking at, well, how have those Massachusetts businesses been operating in the recent past? What would it take for them to adjust to a $15 minimum wage, and really looking at that kind of data to advise policymakers about what kind of measures to adopt.
I think now that we’re seeing measures being adopted across the country in different localities we’re going to have a lot more information about what kind of minimum wage we can sustain in this economy, and how we can make this a robust labor standard. I think what we’ve been operating as economic researchers, as economists, what we’ve been operating with is much more modest minimum wage hikes in the past, and now we have a chance to see, well, what kind of minimum wage standard could we raise our economy up to given what we have in our economy in terms of resources and how businesses have demonstrated that they have been able to adjust in the past.
PERIES: All right. Jeannette, we’ll be following this along with you. Thank you so much for joining us today.
WICKS-LIM: Thanks for having me.
PERIES: And thank you for joining us on the Real News Network.
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