Is Increasing the Minimum Wage to $23 per Hour Justified?

In the ongoing debate over minimum wage policy, one critical argument centers on whether the minimum wage should be raised to $23 per hour. This proposal has its merits, particularly when considering the historical relationship between productivity and wages, yet it also faces significant challenges, especially regarding employment levels and the potential displacement by automation. This article explores both sides of the argument, highlighting the complex interplay of economic factors and policy implications.

The Role of Productivity and Wages

During the Great Depression period, the minimum wage was established to ensure a living wage for workers. However, since then, the minimum wage has not kept pace with productivity gains. According to the Center for Economic and Policy Research (CEPR), if the minimum wage had adjusted for productivity growth since 1938, it would now be around $23 per hour. This analysis suggests that correcting this historical disparity is achievable and necessary.

Against this backdrop, there is a strong argument for raising the minimum wage, especially in light of the current economic landscape. Proponents argue that increasing the minimum wage to $23 per hour would reflect a fairer wage-to-productivity ratio, ensuring that the fruits of production are distributed more equitably among workers. This adjustment could help to reduce income inequality, which has long been a pressing issue in many countries.

Impact on Business Practices and Labor Markets

However, the question of raising the minimum wage also considers its impacts on businesses and labor markets. Many companies that employ minimum wage workers are already cost-optimized, seeking to minimize labor costs through reducing benefits and increasing automation. These strategies enable businesses to keep their operational costs low, thus increasing profits but reducing the financial well-being of their employees.

According to the argument presented, if the minimum wage were raised to $23 per hour, companies might pass on these increased costs to consumers or reduce other operational expenses, including benefits, potentially leading to an overall financial burden on employees. Moreover, some argue that such a significant increase could make entry-level and non-skilled jobs untenable, making them less attractive to both current and potential workers. Automation, in this context, becomes a larger threat as businesses seek to replace human labor with machines to maintain efficiency and reduce costs.

State-Level vs Federal-Level Policy

The dilemma also lies in the balance between federal and state-level policy. While some advocate for a uniform national minimum wage, others argue that such decisions should be left to the states. State-level governance allows for more tailored approaches that can cater to the unique economic conditions and preferences of different regions.

Following the example of countries like Denmark, Sweden, Norway, Finland, Iceland, and Switzerland, which have adopted various wage policies including minimum wages, states should have the autonomy to determine their own minimum wage rates. This approach ensures that people can vote on issues relevant to their specific needs and circumstances without federal mandates.

Flexibility and Adaptability

Given the complex economic environment, the suggested increase to $23 per hour might need further adjustments. For instance, in less economically advantaged regions or "poor red states," a gradual increase might be more practical, possibly supported by tax policy changes that reduce the employer’s share of wage tax burden. This approach helps to balance the needs of businesses and workers, ensuring that businesses can adjust and the workforce benefits from fair wages.

It is also important to recognize that wage increases typically follow inflation, rather than causing it. Therefore, any increase in the minimum wage would be better applied after inflation adjustments have been made, rather than as a lead indicator.

In conclusion, while raising the minimum wage to $23 per hour aligns with historical productivity gains and addresses income inequality, it must be implemented with careful consideration of its impact on businesses and job markets. States, rather than the federal government, should have the autonomy to implement such policies based on local conditions and preferences.

Keywords: Minimum Wage, Economic Productivity, Labor Benefits, Federal vs State Regulation, Automation