$15 minimum wage - Good or bad?

    The minimum wage debate has been getting more attention since the election. Biden's win in November 2020 gave life to the Fight for $15 movement. I  honestly did not know that it was even a movement until now. Much of the media never covered the news consistently enough. As you can see from the graph, our interests peaked in January 2020 (based on Google Trends). Before that, the topic generated below 50% interest. The graph shows the result from Google Trends when searching for minimum wage as a topic.

    Not so surprisingly, when we look at the same result by region, the states that are leaning left of the political spectrum have shown much more interest.

    When we look back 90 days compared to 12 months, we can see more people showing interest in the west and midwest regions. It shows the shift in interest by region.

    Google Trends cannot tell us how many people support the bill. It can only tell us that more people are paying attention, including myself. Most importantly, this shows that the west coast region has shown the most interest in minimum wage topics for a while. The midwest and west regions have only recently shown more interest.

What could happen if Congress passes the bill?

Link to: CBO analysis

    $15 minimum wage will not go live right away. According to the CBO analysis, the minimum wage will go up to $15 by 2025, raising $1.50 every year. So, the impact is gradual.

    According to the CBO, higher prices from paying higher wages would impact government spending. There would be additional costs to supplement government programs. CBO uses long-term healthcare as an example. It would increase the deficit by $54 billion by 2031.

    CBO points out that the numbers they came up with are based on their assumption that GDP would be unchanged. Keeping GDP the same makes it possible for CBO to come up with a standard method to calculate. In reality, GDP will change, and how much it changes can make a big difference.

    Using the current GDP, it is evident that their numbers would show a cumulative negative impact. Not surprising to see prices go up if we keep the total income the same as now. CBO estimates that the total net income would rise by $333 billion by 2031. It accounts for net gain and loss from various factors. Based on that, the rise of total income would overtake the loss of income.

    Several other areas would see higher costs for the government. Unemployment costs will rise as the wages go up. Social Security will cost more money as the benefits are tied to the average wage. In some ways, I get the feeling that this will shift the government budget.

    Many different areas would offset the costs. The nutrition programs should cost less. as mostly the lower-wage workers rely on the program. Furthermore, CBO emphasizes that a portion of the capital income will shift to the lower-income segment. Labor incomes are taxed much more than the capital income, so the government should see higher revenue.

    Many businesses with lower net margins will face challenges. Businesses with monopsony power would hire more as long as the minimum wages stay below their marginal factor costs and over the marginal revenue. CBO estimates that it would only have a minor impact. It also estimates that we will see a boost in demand for a while, but it would go down. The reason is because of the spending behavior. Based on visualcpitalist.com, we can see that the bottom 20% of wage earners spend 100% of their income. In contrast, the top 20% spend 53% of their income.

    CBO estimates a one-third chance of seeing increases in unemployment by zero to 1 million by 2025 and a one-third chance of its being above 1 million to 2.7 million. Of course, this is based on the current economy and GDP, so the impact is obvious to a degree.

    We will likely see rising prices, which could displace some workers, but CBO is careful about estimating that unemployment would continue after 2025. Overall, I think CBO knows that there is uncertainty in how much of the additional income to the lower-wage earners would go back into the system. If the bottom 20% continue to spend 100% of their income, then the additional $333 billion would go right back into the system. I think it could have a similar effect on the economy as we have seen with the government's stimulus payments. Also, we would not know how an improved standard of living would affect the next generation. We could potentially see more generations come out of poverty, adding to the higher-wage supply of laborers. However, we could see more employees flocking to the near $15 limit in the short run.

    I have definitely gained more interest in this topic. CBO downplays how the labor market would shift if the minimum wage goes up. Would the displaced workers continue to stay unemployed? Would there be more needs for skilled jobs to find cost-cutting innovation? We already see a rise in automation, and artificially raising wages in the bottom 20% could attract more investments to companies like MISO Robotics. We already have a high inflow of capital, and there could be a new wave of companies trying to enter the market. If so, would that lower the overall supply of jobs while increasing the supply of low-wage laborers? We just won't know, but we should also realize that inequality exists in our society. While the lower 20% spends 100% of their income to get by, the top 20% spends only 53% of their income. Yes, much of the leftovers go into the investment to fuel our economic development. However, it comes with the price of suppressing the wage in the long run.