The long read: Some economists say it should be raised. Others say its already too high. But what if both sides are missing the point?
No idea in economics provokes more furious argument than the minimum wage. Every time a government debates whether to raise the lowest amount it is legal to pay for an hour of labour, a bitter and emotional battle is sure to follow rife with charges of ignorance, cruelty and ideological bias. In order to understand this fight, it is necessary to understand that every minimum-wage law is about more than just money. To dictate how much a company must pay its workers is to tinker with the beating heart of the employer-employee relationship, a central component of life under capitalism. This is why the dispute over these laws and their effects which has raged for decades is so acrimonious: it is ultimately a clash between competing visions of politics and economics.
In the media, this debate almost always has two clearly defined sides. Those who support minimum-wage increases argue that when businesses are forced to pay a higher rate to workers on the lowest wages, those workers will earn more and have better lives as a result. Opponents of the minimum wage argue that increasing it will actually hurt low-wage workers: when labour becomes more expensive, they insist, businesses will purchase less of it. If minimum wages go up, some workers will lose their jobs, and others will lose hours in jobs they already have. Thanks to government intervention in the market, according to this argument, the workers struggling most will end up struggling even more.
This debate has flared up with new ferocity over the past year, as both sides have trained their firepower on the city of Seattle where labour activists have won some of the most dramatic minimum-wage increases in decades, hiking the hourly pay for thousands of workers from $9.47 to $15, with future increases automatically pegged to inflation. Seattles $15 is the highest minimum wage in the US, and over double the federal minimum of $7.25. This fact alone guaranteed that partisans from both sides of the great minimum-wage debate would be watching closely to see what happened.
But what turned the Seattle minimum wage into national news and the subject of hundreds of articles wasnt just the hourly rate. It was a controversial, inconclusive verdict on the impact of the new law or, really, two verdicts, delivered in two competing academic papers that reached opposite conclusions. One study, by economists at the University of Washington (UW), suggested that the sharp increase in Seattles minimum wage had reduced employment opportunities and lowered the average pay of the poorest workers, just as its critics had predicted. The other study, by economists at the University of California, Berkeley, claimed that a policy designed to boost worker income had done exactly that.
The duelling academic papers launched a flotilla of opinion columns, as pundits across the US picked over the economic studies to declare that the data was on their side or that the data on their side was the better data, untainted by ideology or prejudice. In National Review, the countrys most prominent rightwing magazine, Kevin D Williamson wrote that the UW study had proven yet again that the laws of supply and demand apply to the labor market. Of course, he added, everyone already knew that.
Over on the left, a headline in the Nation declared: No, Seattles $15 Minimum Wage Is Not Hurting Workers. Citing the Berkeley study, Michelle Chen wrote: What happens when wages go up? Workers make more money. The business magazine Forbes ran two opposing articles: one criticising the UW study (Why Its Utter BS), and another criticising liberals for ignoring the UW study in favour of the Berkeley study (These People are Shameless). This kind of thing furious announcements of vindication from both sides was everywhere, and soon followed by yet another round of stories summarising the first round of arguments.
When historians of the future consider our 21st-century debates about the minimum wage, one of the first things they will notice is that, despite the bitterness of the disagreement, the background logic is almost identical. Some commentators think the minimum wage should obviously go up. Some think all minimum-wage laws are harmful. Others concede we may need a minimum wage, but disagree about how high it should be or whether it should be the same everywhere or whether its goals could be better accomplished by other measures, such as tax rebates for low-income workers.
But beneath all this conflict, there is a single, widely shared assumption: that the only important measure of the success of a minimum wage is whether economic studies show that it has increased the total earnings of low-wage workers without this increase being outweighed by a cost in jobs or hours.
It is no coincidence that this framing tracks closely with the way the minimum wage is typically discussed by academic economists. In the USs national organs of respectable public discourse New York Times op-eds, Vox podcasts and Atlantic explainers the minimum-wage debate is conducted almost entirely by economists or by journalists steeped in the economics literature. At first glance, this seems perfectly natural, just as it may seem completely natural that the debate is framed exclusively in terms of employment and pay. After all, the minimum wage is obviously an economic policy: shouldnt economists be the people best equipped to discuss its effects?
But to historians of the future, this may well appear as a telling artifact of our age. Just imagine, for a moment, combing through a pile of articles debating slavery, or child labour, in which almost every participant spoke primarily in the specialised language of market exchange and incentives, and buttressed their points by wielding competing spreadsheets, graphs and statistical formulas. This would be, I think we can all agree, a discussion that was limited to the point of irrelevance. Our contemporary minimum-wage debates are similarly blinkered. In its reflexive focus on just a few variables, it risks skipping over the fundamental question: how do we value work? And is the answer determined by us by politics and politicians or by the allegedly immutable laws of economics?
In the last four years, some of the most effective activists in America have been the Fight for $15 campaigners pushing to raise the minimum wage whose biggest victory so far had come in Seattle. Thanks to their efforts widely viewed as a hopelessly lost cause when they began significant minimum-wage increases have been implemented in cities and states across the US. These same activists are laying plans to secure more increases in this Novembers midterm elections. The Democratic party, following the lead of Bernie Sanders, has made a $15 minimum part of its official national platform. US businesses and their lobbyists, historically hostile to all minimum-wage increases but well aware of their robust popularity, are gearing up to fight back with PR campaigns and political talking points that paint the minimum wage as harmful to low-wage workers, especially young workers in need of job experience.
In the UK, Jeremy Corbyn has pledged that a Labour government would raise the national minimum wage to 10 within months of taking office. (It is currently on schedule to rise slowly to 9 by 2020, which has been criticised by some on the right, citing Seattle as evidence that it will eliminate jobs.) In recent years, EU policymakers have raised the possibility of an EU-wide minimum-wage scheme. All this activity combined with concern about rising economic inequality and stagnating wages means the minimum wage is being studied and debated with an intensity not seen for years. But this is a debate unlikely to be resolved by economic studies, because it ultimately hinges on questions that transcend economics.
So what are we really talking about when we talk about the minimum wage?
The first minimum-wage laws of the modern industrial era were passed in New Zealand and Australia in the first decades of the 20th century, with the goal of improving the lives and working conditions of sweatshop workers. As news of these laws spread, reformers in the US sought to copy them. Like todays minimum-wage proponents, these early reformers insisted that a minimum wage would increase the incomes of the poorest, most precarious workers. But they were also explicit about their desire to protect against capitalisms worst tendencies. Without government regulation, they argued, there was nothing to stop companies from exploiting poor workers who needed jobs in order to eat and had no unions to fight on their behalf.
In the field of economics, the concern that a state-administered minimum wage also known as a wage floor could backfire by reducing jobs or hours had been around since John Stuart Mill at least. But for many years, it was not necessarily the dominant view. Many mainstream economists supported the introduction of a minimum wage in the US, especially a group known as institutionalists, who felt economists should be less interested in abstract models and more focused on how businesses operated in the real world. At the time, many economists, institutionalist and otherwise, thought minimum-wage laws would likely boost worker health and efficiency, reduce turnover costs, and by putting more cash in workers pockets stimulate spending that would keep the wheels of the economy spinning.
During the Great Depression, these arguments found a prominent champion in President Franklin Roosevelt, who openly declared his desire to reshape the American economy by driving out parasitic firms that built worker penury into their business models. No business which depends for existence on paying less than living wages to its workers has any right to continue in this country, he said in 1933.
Inevitably, this vision had its dissenters, especially among business owners, for whom minimum-wage increases represented an immediate and unwelcome increase in costs, and more generally, a limit on their agency as profit-seekers. At a 1937 Congressional hearing on the proposed Fair Labor Standards Act (FSLA) which enacted the first federal minimum wage, the 40-hour work week and the ban on child labour a representative of one of the USs most powerful business lobby groups, the National Association of Manufacturers, testified that a minimum wage was the first step toward totalitarianism: Call it Bolshevism or communism, if you will. Call it socialism, Nazism, fascism or what you will. Each says to the people that they must bow to the will of the state.
Despite these objections, the FLSA passed in 1938, setting a nationwide minimum wage of $0.25 per hour (the equivalent of $4.45 today). Many industries were exempt at first, including those central to the southern economy, and those that employed high proportions of racial minorities and women. In subsequent decades, more and more of these loopholes were closed.