A $15 Minimum Wage – Who Gets It?

The campaign for a $15 minimum wage in New York has gained incredible strength this year. But even supporter of the increase are wondering how high the wage can rise before it will begin to reduce employment and hurt the economy…

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A wage board in New York made a strong case that it would make sense to pay fast-food chain workers $15 an hour in New York City because of the high cost of living there. However, cities with lower costs of living are another case – of which the age board suggested that the increase would begin in 2018 for New York City and not for elsewhere in the state until 2021.

Economists are using the ratio of the minimum wage to the wage of workers in the middle of the income distribution or median wage to gauge the impact of the minimum wage increases. The higher the ratio of the minimum to the median wage gives a greater the boost to workers.

However, with that higher ratio, comes a greater risk of job losses. There are few historical examples of increases that are more than 60 percent. But, there is some evidence that cities have managed increases when the minimum wage is 50 percent of the median, even a little higher. Though, economists are worried about what a 60 percent range increase or higher could mean – possible significant job losses.

A few European countries had minimum to median ratios between 50 to 60 percent and they did not show many negative effects. Some are comparable to higher unemployment rates to the United States such as France and others, like Germany do not. What about other cities in the United States?

San Francisco and Seattle already have $15 an hour minimum wage laws. Washington may be implementing it next year, which has a median wage of $24.58, making a 65 percent difference in the wage. Other cities such as Minneapolis, Philadelphia, Chicago, and Detroit are around the same standing.

For a city like Detroit, the figure might be slightly incorrect. The high ratio masks the high unemployment or low labor force participation among people who want low-wage jobs, but can’t get them. If those jobs did exist, they would drive down the median wage, but they don’t. Since Detroit isn’t a prosperous city so there isn’t a demand for low-wage jobs. Thus, all the jobs that they do have pay higher.

It makes sense to single out prosperous cities like New York City or Washington where there is a demand for low-wage jobs, helping to eliminate inequality. Though, we will have to wait and see New York State’s ruling.