One of today’s leading political movements is the “Fight for $15,” a campaign to raise the national minimum wage to $15 an hour. Democrats like Senators Bernie Sanders and Elizabeth Warren persist in their efforts to make the idea law. I have just three questions for these equality “pioneers.”
Why $15 an hour? Sure, multiples of 5 are great – you’ll never catch the volume on my stereo set to anything else – but what is the economic, egalitarian, or even logical justification? Why not $12, 17, or $38? A Pew Research Center study showed a national minimum wage increase doesn’t produce equality due to differences in cost of living. To quote the study, “the same purchasing power that $15 has in New York City would cost $13.07 in Chicago; $12 in Fresno, California; $11.10 in Cincinnati; and just $10.43 in Anniston, Alabama.” This shows the “Fight for $15” isn’t about equality as those living in rural or low-cost areas realize a disproportionate advantage; equality would be raising the minimum wage based on purchasing power in each market, the one size fits all method doesn’t achieve this.
Why pass a national minimum wage? At the beginning of this year 19 states increased the minimum wage with two more set to increase later this year; those in favor of an increase are acting upon it. We see the same in cities. Chicago, Los Angeles, New York, Oakland, San Francisco, Seattle, and Washington D.C. are moving to $15 an hour as well. These individual markets want to control their prices, so let them; especially as we see many major corporations increasing their wages above local and national minimums. As the Pew Research Center study evinced, local markets should establish their own living wage as cost of living varies. Is the push for a national increase just to keep the federal government relevant? Sounds petty so it’s probably true.
Who does this affect most? I’ll spoil the suspense and tell you: the middle-class. Here’s why:
Let’s say you work full-time at McDonald’s, a low skill job with no education requirements. You work forty hours per week, fifty-two weeks a year. If you were being paid the current national minimum wage of $7.25 an hour, you would earn $15,080 a year. Now, if we increase the minimum wage to $15 an hour you would more than double that amount giving a total of $31,200 a year. Talk about massive change, right? A job at McDonald’s earning minimum wage would lift you above the current poverty guideline for a family of five in the contiguous United States. If you don’t look beyond this 106% increase in salary however, you’ll miss what is truly at stake.
I’m sure at some point during your education you saw a chart showing you that, even though it may take longer and cost more, overall you will earn more as your skill and knowledge increases. This argument is flipped however, if low-skill jobs earn an increased minimum wage.
Let’s take teachers for example. To become a teacher, you need at least a bachelor’s degree which, if you follow the traditional route will take four years. If you are a penny pincher, you will take the cheaper option of an in-state public university. According to StudentLoans.gov, the average student loan debt from such an institution is $26,946. If you take the standard approach you will have a 120-month repayment plan at a 3.9% interest rate amounting to $272 a month or $32,585 over the life of the loan. You will then go to your job as a secondary teacher in, say, Washington state at the starting wage of $35,700 per year with increases based on a sliding scale.
Remember that minimum wage worker? Well the whole time you’ve been at school they’ve been earning $31,200 a year; so, after your schooling is complete they have earned $124,800 more than you. To make matters worse, taking into consideration loan repayment ($3,264 annually) you’re making only $1,236 more than them. But fear not, your wage will increase and your loans will eventually be paid off.
As you approach eight years of teaching you realize your pay will be maxed out without any further education so you decide to get your M. Ed like around 56% of your teaching colleagues. There are plenty of options for location and cost, but we’ll say it costs about $9,000 and takes two years. If you finance this with the same standard option, over one year you’ll spend $12,047. However, the following year you will see a significant pay increase.
After eleven years of teaching, six years of schooling and $47,747 in cumulative debt, your annual income is almost $7,841 more than your minimum wage counterpart; just like you’ve been told all your life, education pays off. Looks can however, be deceiving. In fact, your minimum wage counterpart has amassed $81,061 in lifetime earnings more than you. In total, assuming the minimum wage employee never receives a raise, promotion, or overtime, it will take you about fifteen years of teaching (19 years post high school graduation) to surpass the earnings of a minimum wage employee.
Fifteen years! That’s enough time to redo K-12 and decide you don’t want to deal with all the debt and time out of the work force. While some people may have a passion for a low-paying profession which requires a degree, I think you would find many people opt for the simple life of flipping burgers when they can earn a similar amount until they are into their late 30’s.
If you follow through logically there are at least three possible outcomes of the minimum wage increase:
- Pay scales will necessarily shift. As the teacher scenario demonstrates, if wages do not adjust across the board those with college degrees or even a Master’s could wait fifteen years to possibly earn the same as a low-skilled employee. Most with college degrees won’t want to make the same as an 18-year-old filling your drink, therefore, the pay scale will shift to reflect the education and skills required. This is essentially inflation. Rather than the government printing money as they did with quantitative easing, they will force businesses to flood the market with dollars. This would then lead to an increase in costs to the consumer which would, in turn, lead to an increase in the cost of living which would require a new minimum wage. Fight for $50 has a nice ring to it.
- Layoffs will happen. Or at the least, people will see a reduction in hours and will be forced to do more for a business to avoid profit loss. You see this already with the ACA forcing employers with 50+ employees to provide health insurance; if you add a cost to a business, the business cannot grow or may be forced to downsize.
- People earning more volunteering to take a pay cut. Look to the advent of self-serve kiosks and employee free grocery stores to tell you how likely this option is.
So why $15 an hour? If you want to force employers to pay a certain amount, you’d better have a reason for it other than liking the alliteration in “Fight for $15”. The reason for the shortsightedness of the movement is they have no idea what the hell they are talking about. So, before you grab that sign and protest, do some basic math. Lord knows the Democrats won’t.