Thursday, January 18, 2018
Business

PolitiFact: Fact-checking a $15 minimum wage

One of the biggest policy battles between Democratic presidential contenders Hillary Clinton and Bernie Sanders has been about the minimum wage — not whether to raise it, but how high it should go.

Sanders, who supports raising the minimum wage to $15 an hour, has used his stance as a wedge to win liberal primary voters away from Clinton. She backs a national rate of $12 per hour, with some localities able to go as high as $15.

Largely lost in the tumult is just how rapidly the debate over the minimum wage has shifted during the past few years, at least on the Democratic side. (Republicans, by and large, are skeptical about raising the minimum wage, though Donald Trump said on May 8 that he "would like to see an increase of some magnitude, but I'd rather leave it to the states.")

In fact, among Democrats, the minimum-wage rhetoric has moved so fast that it hasn't kept up with academic research on the subject. This has left Sanders touting support for a minimum wage level that hasn't received much academic vetting — and that leaves unanswered the question of what the downside of a large wage increase could be.

A consistent shift

In his first presidential campaign in 2008, Barack Obama ran on a promise of raising the minimum wage to $9.50 by 2011. Once in office, he largely avoided the issue until his 2013 State of the Union address, in which he advocated a $9 minimum wage. Then, in November 2013, Obama adopted the cause of a $10.10 minimum wage.

Now, both Democratic presidential candidates are on record saying $10.10 is far too low.

So, in the span of just over two years, Obama's proposed bump of $1.75 over the current level has been left entirely in the dust.

Sanders calls instead for an increase of $7.75. That's more than double the present level — which has been steady at $7.25 since 2009 — and it's 40 percent higher than the all-time highest inflation-adjusted minimum wage level, $10.69 in February 1968. (Sanders' bump, it should be noted, wouldn't come all at once; a bill he introduced in 2015 would phase in the $15 wage incrementally by 2020.)

Why is such a sizable increase being proposed now? The biggest factor is probably the success of city-based efforts to raise the minimum wage to $15, which have scored victories in Los Angeles, San Francisco and Seattle in recent years.

Such local successes have been amplified by the competitive 2016 Democratic primary, in which Sanders has channeled the policy priorities of the party's most progressive voters.

Shortage of research

A side effect of the rush to increase minimum wage targets became clear to us in a recent fact-check. We rated Mostly False a tweet by Bernie Sanders that said, "Increasing the min. wage to $15 an hour would reduce spending on food stamps, public housing and other programs by over $7.6 billion a year."

The biggest problem we found was that the study with the $7.6 billion figure looked at a minimum wage rise of $10.10, not $15. Tellingly, the study wasn't that old — it was published in October 2014, at a time when the $10.10 proposal was more prominent in the zeitgeist.

The group that published it, the left-leaning Economic Policy Institute, later followed up with a study of a wage hike to $12. But it appears that academic studies of the effects of a $15 minimum wage — both its benefits and its drawbacks — are all but nonexistent.

At the very least, the lack of academic studies of the $15 minimum wage means there's uncertainty about what would happen with an increase that big. In a worst-case scenario, some economists say, that kind of increase could cause more problems than it solves.

For instance, in 2014, the nonpartisan Congressional Budget Office estimated that an increase of the minimum wage from $7.25 to $9 would result in the loss of 100,000 jobs. But a rise to $10.10, CBO estimated, would swell that number fivefold, to 500,000.

Scaling that calculation up to a $15 minimum wage would almost certainly increase net job losses beyond that, Gary Burtless, an economist with the Brookings Institution, told PolitiFact.

"It's very hard to believe that a minimum wage hike to $15 would produce the same adverse impact on employment as a hike to just $10.10," Burtless said. Indeed, the potential adverse impacts are "likely to be considerably bigger" at $15, he said.

The negative effects could be especially big in lower-cost rural areas. Raising the minimum wage to $15 is one thing for bigger cities where the cost of living is more expensive; these are the places where the movement has flourished in recent years. But in rural areas, Washington Post columnist Catherine Rampell has written, it "would likely throw many, many more people out of work."

Rampell noted that in eight states, such as Mississippi and Arkansas, the median hourly wage is below $15. So in these states, a national $15 minimum wage would mean that more than half of workers would receive raises, with many seeing more than a doubling of their pay. In that environment, it's not hard to envision employers laying off workers, raising prices on the goods and services they produce, or both.

Economists who favor $15

When we reported our fact-check, one of the documents the Sanders camp gave us was a letter supporting a $15 minimum wage that was signed by more than 200 economists. After we published that fact-check, we came across another letter. This letter, supporting a $10.10 minimum wage, was signed by more than 600 economists — three times as many. It was released in January 2014. That's not long ago as the calendar goes, but it's a lifetime away as measured by the boundaries of the Democratic policy debate.

We counted the economists who signed both letters and found fewer than 100 who did. This comparison isn't scientific — it's likely the $15 letter wasn't offered to every signer of the $10.10 letter, and comparing it this way ignores additional signers located by the organizers of the $15 letter.

Still, we checked with a number of economists who had signed the $10.10 letter. Two of them — Andrew Zimbalist of Smith College and Steven Fazzari of Washington University in St. Louis — said they would likely support a $15 minimum wage.

Fazzari, for instance, said not raising the minimum wage substantially entails the risk of leaving many workers "without the ability to afford a decent life, despite working hard at a full-time job. Aside from being fundamentally unjust in a rich society, this situation also fuels the kind of social frustration and unrest that we have seen break out in various ways over the past few years."

Fazzari said he thinks the risks of job losses would be less severe if the policy is implemented nationally, rather than locality by locality, "because a national policy limits the ability of employers to relocate to dodge the requirement. A national policy levels the playing field."

Economists' skepticism

At the same time, Fazzari and Zimbalist both emphasized that their support was contingent on careful implementation, including a deliberate phase-in over time. "Despite my support for a $15 wage, I would have to say that an increase of this amount is somewhat risky — job losses could be more significant than what past research has identified," Fazzari said.

A majority of the economists we contacted expressed even greater skepticism about a $15 minimum wage increase.

Burtless was one with this view. His Brookings colleague, Henry Aaron, was another, calling a $15 minimum wage "terra incognita."

Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, said he's willing to take the job-loss trade-off that might follow an increase to $10.10. "But $15 is too high," he said. "Job losses would be much higher and employment would fall for the lowest-skill workers."

Harvard University economist David Cutler concurred, saying he "would be uneasy about $15 everywhere. I am much more comfortable with $12 everywhere."

Brookings Institution economist Barry Bosworth said since he's "unsure of the effect" of a $15 minimum wage, he's "reluctant to sign on to a number so far out of line with the historical experience."

That lack of historical experience also worries Roger Noll, a Stanford University economist. He said that in this political environment, the idea of getting a $15 minimum wage seems unlikely. Even Clinton's $12 proposal, he said, would require working Democratic majorities in both chambers of Congress, "which is possible but unlikely."

The most likely scenario if Clinton wins the presidency, Noll said, would be for the minimum wage to be raised in three or four steps over two or three years to between $10 and $11.

"This would be in the range of past changes, and so would be likely to produce a net benefit to low-wage workers but a small increase in unemployment," Noll said.

And Tara Sinclair, an economist at George Washington University and the jobs site Indeed, suggested that successful policy proposals for low-wage workers expand beyond just the level of the minimum wage.

"I'd like to have more focus on finding ways to get people to move up over time out of minimum-wage jobs, no matter how high the minimum wage ends up being," she said.

Contact Louis Jacobson at [email protected] Follow @loujacobson.

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