By Marc Stier
The Pennsylvania House is moving rapidly to pass an increase in the minimum wage.
House Bill 1500, co-sponsored by Democratic Reps. Jason Dawkins,of Philadelphia, and Patty Kim, of Dauphin County, would increase the minimum wage to $15 per hour over three years and then created annual increases in the future based on the cost of living. While the bill, which is now before the House Appropriations Committee, is not perfect, it would provide enormous benefits to Pennsylvania workers and Pennsylvania’s economy.
The legislation has faced the usual arguments made against raising the minimum wage. But what the critics seem not to have noticed is that those arguments make little under current economic conditions, if they ever did.
Indeed, it’s hard not to conclude that this is the best possible time to raise the minimum wage for both workers and businesses.
Raising the minimum wage is almost certain to lead to the creation—not elimination—of jobs and a better environment for businesses.
Businesses all over the state are frustrated by their inability to hire enough workers in the post-pandemic economy. Many of them have already raised wages. Many more would do so if they didn’t fear it would put them at a competitive disadvantage. By creating a higher floor for wages, a higher minimum wage allow businesses to pay more without fear of losing business to their competitors. And higher wages bring more potential workers back into the job market.
Higher wages—and the new jobs created when more people enter the workforce—would also generate more consumption of goods, which would lead to more economic activity and even more new jobs. Using recent Keystone Research Center projections,
I estimate that 1.3 million to 1.5 million workers—or as much as 25% of the state’s work force—would get a raise when the minimum wage reached $15 and that over between $5 billion and $6 billion in wages would be added to the state’s economy. And the KRC projection does not account for the multiplier effect of new job creation.
I’ve adapted KRC projections because they assume the minimum wage reaches $15 in January 2014, not 2016 as it is in HB 1500.
Having grown up in a small, family-owned business, I understand that small business owners worry about how to afford paying higher wages. But what my family discovered is paying higher wages brought us workers who were better motivated and less likely to quit, reducing the cost of finding and training employees. Higher wages for all brought us more customers, too. We couldn’t pay more if we were the only business doing so. But when our competitors also had to pay more, we all benefited.
Raising wages is especially important to protecting workers at a time of high, if recently declining, inflation. The workers who would see higher wages because of a higher minimum wage are not just those making below $15. As businesses adjust their wage scales to prevent employees from leaving, a higher minimum wage would boost wages for those making more than that new minimum wage. And, no, it wouldn’t lead to higher inflation because wages are not the sole, or many cases, the main cost of doing business.
The claim that raising the minimum wage helps businesses and creates jobs may sound counter-intuitive to some who have studied abstract economic theory.
But as contemporary research shows, abstract theory ignores an important contemporary reality—giant, wealthy corporations dominate our economic life. A large share of workers are employed by huge corporations. A large share of small businesses buy goods and services from those same corporations.
Lack of competition in most industries gives those corporations economic power. The wages huge corporations pay are below what they would be if they had real competition. And the goods and services they sell are priced higher—and are increasing faster—than they would be in a truly competitive market.
A higher minimum wage—like the right to form unions, the social safety net, and a tax system that asks the rich to pay at a higher rate than the poor—are a necessary a counter to the near-monopoly power of corporate giants. It doesn’t raise wages above what they would be in truly competitive market but ensures that they reach that level.
Higher wages shifts income from the wealthy people who own corporations and save much of what they earn to working people who spend what they earn. That creates more economic activity and create jobs. By protecting workers, a higher minimum wage ultimately helps small businesses, too.
Pro-business advocacy groups often fight the minimum wage in the name of small businesses. But the truth is that they are fighting for those who support them: large corporations, which have far too much power in our economic life, and through their campaign contributions our political life as well.
There has never been a better time in Pennsylvania, and our country, to counter their power and work together to create a political economy that works for all of us.
Marc Stier is the executive director of the Pennsylvania Policy Center, a progressive think-tank in Harrisburg. His work appears frequently on the Capital-Star’s Commentary Page.
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