What would a $15 minimum wage mean to the economy?

Chicago TribuneAugust 5, 2013 

A national push to raise employee wages at restaurants, supermarkets and elsewhere to as high as $15 per hour pits labor organizers against business owners in an emotional debate about economics and the cost of living.

Not directly included in the discussion is an important constituency: the customers. If they support the idea of an increased minimum wage, they will likely see higher prices for hamburgers, clothes and other goods.

Economists and others who study consumer behavior say that shoppers may react sympathetically to the call for higher pay for workers in the service industry who struggle to make ends meet, but in the end they will take care of their own needs.

“I would pay a couple of dollars more for products but the question then is, do I get a raise too? If my salary goes up, I will be willing to pay even more for my products,” R.B. Barrett, 45, said outside a Whole Foods store in Chicago where some 100 people chanted and passed out fliers Wednesday outlining their demands: $15 per hour wages and better working conditions.

Business groups say significant wage increases would require many of their members to lay off workers and pass on costs to the consumers. Some argue that doubling wages combined with the increased employer costs for the national Affordable Care Act could put their members out of business.

“You can’t isolate just the cost of a sandwich at a restaurant,” said Scott DeFife, executive vice president of policy and government affairs at the National Restaurant Association. “Lifting the minimum wage in that manner, to that degree, increases pressure on all of the other industries around it.”

On Wednesday and Thursday, demonstrations were held in Chicago, New York City, Detroit and Milwaukee as part of a nationwide movement of organized events. In Chicago, many who protested earn an hourly wage around Illinois’ minimum of $8.25, which would translate into an annual salary of about $17,000. A raise to $15 per hour would mean a salary of $31,200.

The workers’ push for higher wages comes as the nation has yet to create all the jobs lost during the recession. There are nearly 12 million people unemployed still looking for a job. Economists say many thousands more have given up hope.

The high unemployment seen in the aftermath of the Great Recession is hurting wages across the board, said Heidi Shierholz, a labor economist with the Economic Policy Institute, a labor-oriented think tank based in Washington.

“There is a very tight link between high unemployment and low-wage growth. It’s just as simple as if your employer knows you don’t have any outside options. They don’t have to pay you wage increases to keep you,” Shierholz said. Those earning the lowest wages, she added, have been hurt the most.

In theory, wage growth is tied to productivity, but globalization, politics and economic policy broke that relationship in the 1970s, Shierholz said. If the trend had continued, she added, the federal minimum wage today would be closer to $18 per hour instead of $7.25. That doesn’t mean that the economy could handle doubling the minimum wage overnight, but it could start increasing slowly, she said.

“This campaign underscores that the wages for the whole bottom swath of the wage distribution are just too low,” Shierholz said.

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