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To raise [the minimum wage] or not to raise, that is the question

Photo Credit: Boston Globe

 

When we examine any issue through an economic lens, there are two distinct possibilities for focusing—normative or positive. The former answers the question of “what will happen?” and the latter, “what should we do?” Using normative economics, our class was challenged to debate a $15 minimum wage in Massachusetts. While debates we are familiar with more often revolve around our moral convictions of what’s right and wrong (“positive”), this was purely about costs and benefits. Here’s what we came up with:

 

The benefits:

  1. Workers earning the current minimum wage ($11 an hour) and just above would be able to afford basic necessities, lifting their families out of poverty (the big one).
  2. The purchasing power of low-wage workers would increase, stimulating local economies.
  3. Retention of employees would increase and companies would spend less money on training new employees.

 

The costs:

  1. Companies would increase their prices to compensate costs, passing the burden onto consumers.
  2. Employers would reduce the hours or benefits of their employees, or enter a hiring freeze.
  3. Neighboring states would become more attractive for conducting business, given their lower minimum wage laws.

 

Of course, other considerations arose, like: what does it mean for the minimum wage to be tied to inflation? Are there better alternatives such as the Earned Income Tax Credit or subsidies? How was the number 15 even determined?

Meanwhile, the real debate was happening at the State House. On September 19, the public had the opportunity to testify in front of the Joint Committee on Labor and Workforce Development on the minimum wage bills (H.2365 filed by Rep. Donahue and S.1004 filed by the late Sen. Donnelly). This legislation would raise the minimum wage by one dollar each year over the next four years, and would then be adjusted to the cost of living. It would also phase out the subminimal wage for tipped workers so that they were eligible for the $15+ minimum wage (before tips) by 2025. Though the bills are cosponsored by 70 representatives and 22 senators—around half in each house—the legislature has failed to move it forward. Should this inaction continue, and should the Raise Up Massachusetts coalition collect enough signatures (64,750 to be exact), this proposal will be left to be decided by Massachusetts voters on the 2018 ballot. Here’s a snapshot of testimony from either side:

 

In Support: “I work hard. Helping people is good work. But when I get home, it’s hard to help myself.” – Dayail Gethers, a wheelchair agent at Logan Airport

 

Against: “Minimum wage hikes result in fewer hours for low-wage earners and fewer jobs…” – Chris Carlozzi, state director of the National Federation of Independent Business

 

And when either side is unwilling to compromise, where do we go from here? MassBudget reminds us that this legislation would impact 943,000 workers or 29 percent of the Massachusetts workforce. Of these workers, 90 percent are over the age of 20 years old, 56 percent are women, 55 percent work full-time, and 24 percent are working parents. We might imagine the impact magnifying to children across the Commonwealth, and the numbers are resounding.

Thanks to economists who have studied the ins and outs and ups and downs of this topic, we know that the impact on employment ranges from little to none (actually, zero to two percent). Given this nearly neutral impact on businesses (a supposed cost) and the pervasive impact on low-wage workers across the Commonwealth (surely a benefit), we can deduce a solution that speaks to both normative economics (“what will happen”) and positive economics (“what should we do”). And if we agree that the minimum wage should be raised, we may ask if fighting for 15 is even enough. (A full-time worker earning $15 per hour would still only earn $31,200 per year. The living wage in Suffolk County for a single parent with one child is around $28 per hour—a gap of $17 to the current minimum wage, and $13 to what’s being proposed.) But for now, we can take our conclusion to the ballot box next November.

 

Published On: October 4, 2017 |
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