Minimum wage pros and cons for workers and small businesses : The Indicator from Planet Money Biden is calling for a $15 federal minimum wage. Is that a good idea for workers and small businesses? Stacey and Cardiff duke it out.

Should We Raise the Minimum Wage?

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Hey, everyone. Stacey and Cardiff here. This is THE INDICATOR FROM PLANET MONEY. Burr versus Hamilton, the Celtics versus the Lakers, Godzilla versus King Kong - to that list of famous rivalries, you can now add advocates of raising the minimum wage to $15 an hour versus opponents of raising it.


Yes. This is one of President Joe Biden's proposals, to start raising the federal minimum wage from where it is now, at $7.25 an hour, to $15 an hour over the next four years. And Democrats in both the House of Representatives and the Senate have now introduced bills to do just that. And, you know, we've been watching economists duke it out on social media and in their papers, arguing for and against this idea. And this is a topic where things can get kind of heated. But it is also a really important and nuanced debate, which is why we thought this would be perfect for Cardiff and me to duke it out.



GARCIA: That's right. And since Stacey and I are both actually kind of neutral on the question, or, in my case, just paralyzed by indecisiveness, we are going to flip a coin. Heads, Stacey argues in favor of raising the minimum wage, tails, she argues against it. And, of course, I take the other side in either case. So let's do it.

VANEK SMITH: And - I'm trusting you here.

GARCIA: It's tails, which means I will be arguing in favor of a $15 federal minimum wage. Stacey will be arguing against it. After the break, a fight over the minimum wage with maximum rage.


MICHAEL BUFFER: Let's get ready to rumble.


GARCIA: OK, here we go. Round 1, Stacey.


GARCIA: Here is why the federal minimum wage should be raised to $15 hour. Quite simply, it helps the workers who most need that extra income. We know this because for the past decade, dozens of state and local governments have raised their own minimum wages, like California, where it's $11 an hour. And until the pandemic, the wages of the lowest-income workers throughout the country were going up faster than everybody else's wages. And that's mainly because of higher minimum wages in those states and cities.

VANEK SMITH: But, Cardiff, it is obviously going to be true that raising the minimum wage helps someone who works at that wage and keeps their job. But I am worried about workers losing their jobs because a higher minimum wage is an added cost for businesses, and it makes workers more expensive for businesses to keep on staff. So businesses might end up just with a smaller staff.


GARCIA: OK, Stacey, that is a possible trade-off, but economists have learned a lot studying this in the past few decades, and they have found that raising the minimum wage does not necessarily lead to businesses hiring fewer workers because a business has other options to find the money that's needed to pay the higher minimum wage. For example, a business can raise the cost of the products it sells. So the price of a burger and a shake goes up by a little bit, but low-income workers get paid more. Seems OK to me.

VANEK SMITH: Higher prices, Cardiff? What you are describing is inflation. And if the minimum wage goes up by too much and the price of that burger and that shake get too high, then eventually customers will stop buying them and just stay home and cook. And that is also bad for both businesses and workers. Almost everybody is worse off in this scenario.


VANEK SMITH: And, Cardiff, I'm also worried that if businesses are forced to pay a higher minimum wage, they will offset that by reducing other benefits to their workers, like health care or retirement benefits, or maybe businesses will cut their workers' hours, so the workers will still not win, even though technically the minimum wage is higher.

GARCIA: OK, that's possible, but it's not necessarily going to be the outcome. So we've just run through a bunch of possibilities, but there is also a chance that a business will simply pay the higher minimum wage without making any other adjustments because higher-paid workers are also happier workers. They are less likely to leave their jobs, so they get better at their jobs over time. And that can make it worthwhile to the business to simply absorb the higher minimum wage without laying anybody off.


VANEK SMITH: Cardiff, you and I both know that we could spend all day trading economic studies that show both sides of this debate.


VANEK SMITH: So instead, let me point out something that we do agree on, which is that if the minimum wage goes up and up and up, at some point, it does become too high. I mean, imagine if the minimum wage was, like, $50 an hour. Businesses just would not be able to afford that higher wage and would have to lay off their workers, especially small businesses. They do not have a lot of cash on hand, especially now, trying to make it through the pandemic when so many small businesses are struggling just to stay alive. I mean, the government tells them that they can't operate at the same capacity or it cuts their business hours, and now it's telling them they have to pay their workers more at the same time. This just seems super unfair.

And so the question is, how high a minimum wage is too high? Well, a $15 minimum wage is more than double the current federal minimum wage. If we're going to definitely raise the minimum wage, at least we should start with a smaller increase so that we can learn over time with the effects are, and especially what the effects are on businesses and workers.

GARCIA: OK, the question of how high is too high, that is a totally fair question. I'm with you on that. But I think $15 is not too high, partly because it is being rolled out gradually over four years so businesses can plan for the increase. And also, the minimum wage over time has not kept up with inflation, which means that when you adjust for inflation, the amount of stuff that you can actually buy if you're getting paid the minimum wage - things like food and housing, you know, basics - has actually been going down. So raising the minimum wage to 15 bucks restores some of that lost buying power.


GARCIA: OK, Stacey, so we've argued about the possible effects of a $15 minimum wage on employment, you know, whether workers will lose jobs. Let me change directions here. I am going to argue that we should evaluate a higher minimum wage by its overall effects, not just those effects on employment.

So here's an example. The Congressional Budget Office estimated that about 1.3 million workers would lose their jobs if the minimum wage was raised to $15. And I admit, that's terrible. But it also estimated that up to 27 million workers would end up with higher wages and that 1.3 million people would also be lifted out of poverty. So I say we should go ahead and raise the minimum wage, and then we can just make sure that there are other policies, like better unemployment insurance or job-retraining programs, that would help the people who do lose their jobs because of that higher minimum wage.

VANEK SMITH: That is an easy argument to make if you're not one of the workers who ends up without a job. And if you want to make a pragmatic case in favor of helping low-income workers, then you should really be arguing that the government, the taxpayers should directly give money to low-income workers instead of forcing businesses to. I mean, after all, improving the financial situation of low-income workers is a societal decision. So all of us, as taxpaying members of society, should pay for it together.

And there's another problem with just looking at the overall effects of minimum wage and ignoring the details, which is that not every part of the country is the same. I mean, a minimum wage of $15 may be fine in New York City, where everything costs more money, but that does not mean it's right for Mississippi, one of the poorest states in the country. In fact, a $15 minimum wage would force businesses to give a raise to half of all the workers in the state. And my worry is that those businesses are really going to struggle to pay their workers, especially right now. And the workers who end up losing their jobs will be the workers who need their jobs the most. And the negative effects of that minimum wage will be concentrated in the places that are struggling the most.

GARCIA: OK, but we should still try because...


GARCIA: Dang it. That is the final bell. We're out of time. And I had a right uppercut ready for you, too.

VANEK SMITH: I'm sure you had something great coming that I would have no answer to.

GARCIA: (Laughter) Yeah. I mean, honestly, we could have gone another 30 rounds on this. We really only scratched the surface on this debate. The economics research on the minimum wage is truly cutting-edge. There's a new and important paper seemingly coming in every month or even every week. So we are going to post an amazingly long list of this research representing both sides to, where the debate can continue.


GARCIA: This episode of THE INDICATOR was produced by Jamila Huxtable and fact-checked by Sam Cai. THE INDICATOR is edited by Paddy Hirsch, and it is a production of NPR.


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