Steep proposed minimum wage increases in New York and California have highlighted a divide among the Democratic presidential candidates over how sharply the federal minimum should be raised as economists debate the risks of higher wage floors.
California’s governor Jerry Brown on Monday signed into law a measure that would lift the state’s minimum wage to $15 an hour by 2023, shortly after New York’s governor Andrew Cuomo signed a law implementing staggered wage increases across the state over a number of years. The New York measure imposes a $15 minimum in New York City by 2018.
The moves far outweigh proposals for increases in the federal minimum wage, which has not been raised since 2009 despite the entreaties of President Barack Obama. They have rekindled a debate over the effects of higher minimum wages, with some experts arguing that overly steep increases could damage employment, squeeze profits and lead to higher prices. Michael Strain, a resident scholar at the American Enterprise Institute think-tank, said the moves by California and New York were “very risky”.
On Monday Hillary Clinton joined Governor Cuomo on stage at the Javits Convention Center in New York City to celebrate the $15 minimum. “This is a real watershed,” the Democratic presidential frontrunner declared, contrasting the policies with Republican reluctance to lift minimum wages. “And I know it’s going to sweep our country.”
Yet in reality Mrs Clinton’s own attitudes towards the minimum wage are much more nuanced. While her opponent Bernie Sanders advocates a federal increase in the minimum wage to $15, Mrs Clinton has backed a minimum wage of just $12.
Her campaign argues the candidate’s backing of the New York move — and call for a $12 minimum nationally — are not contradictory. Mrs Clinton says she supports workers and local governments fighting for higher wages on the state and municipal level, particularly in states such as New York and California where the cost of living is higher.
The Sanders campaign has attacked Mrs Clinton’s approach as inadequate, however, pointing to her minimum wage platform as another example of the former secretary of state being unsympathetic to progressive causes.
A number of states and localities have been moving up minimum wages in the absence of an increase in the federal floor, which stands at $7.25. Last year, 11 states and the District of Columbia lifted their minimum wages through legislation, and 11 states increased them via regular indexing to inflation, according to the Economic Policy Institute, a Washington DC think-tank.
Some economists, including Alan Krueger, the Princeton University professor and former chair of Barack Obama’s Council of Economic Advisers, have argued that while a $12 minimum federal wage would be beneficial, a $15 national minimum would put the US into uncharted waters with potentially undesirable consequences. Mr Strain of the AEI said: “If you increase the minimum wage by this amount you are giving business a pretty strong incentive to try to get by with fewer workers.”
A key problem is the absence of historical evidence showing the effects of such a large move. Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and former economic adviser to vice-president Joe Biden, said an increase to $15 would be “outside our historical range”, making it hard to conclude what its likely impact would be.
He added, however, that “moderate” increases to minimum wages were generally absorbed through slightly higher prices and lower profits, along with fewer hours worked, and that the “beneficiaries far, far outnumber the number of people hurt”.
A report by the Congressional Budget Office in February 2014 said that an increase in the federal minimum to $10.10 would reduce overall employment by 500,000 — a relatively modest 0.3 per cent of the total. In Seattle, one of the first cities to begin lifting its minimum wage towards $15 an hour, Jacob Vigdor, a University of Washington academic who has been studying the changes, has not found any sign of significant job losses as a result.
A move in the federal minimum to $12 an hour would restore it to about its 1968 level relative to the earnings of a typical worker, said David Cooper of the Economic Policy Institute. That was the historical high point of the federal minimum wage. An increase to $15 would take the US beyond its previous experience with the national minimum, raising the wages of the bottom 40 per cent of workers.