Many Roads to a Living Wage

The minimum wage is a venerable policy, but progressives don’t need to put all of their eggs in this particular policy basket.

by Will Marshall, PPI President

The Congressional Budget Office has dealt another blow to progressive hopes for swift action to raise the U.S. minimum wage to $15 an hour. It released a new study this week estimating that while the wage hike would lift 900,000 Americans out of poverty, it also would cost 1.4 million workers their jobs.

Liberal economists challenged the job loss figures, calling CBO’s methodology outdated. But the report feeds growing doubts that Senate Democrats will be able to shoehorn the measure into the big relief bill they hope to pass under “reconciliation” rules that allow for a simple majority vote. That means Republicans could filibuster it to death.

These setbacks raise an important tactical question: In a commendable effort to give working Americans a raise, are progressives fixating too narrowly on the minimum wage? After all, there are other policy tools at their disposal that could lift workers’ earnings without sacrificing jobs or harming small businesses. And these policies — essentially rewards for work delivered through the tax system — could be taken up under reconciliation.

It is abundantly clear that progressives, led by Sen. Bernie Sanders, have made several mistakes in their single-minded pursuit of the $15 wage boost. The first was claiming that it could pass through reconciliation. However, CBO had previously found that Sanders’s proposed “Raise the Wage Act” would have a negligible effect on the federal budget.

So Sanders pushed CBO to produce a new score using different methodology that he thought would make a persuasive fiscal case for the increase. Instead, CBO’s new analysis said that raising the minimum wage to $15/hour would kill over one million jobs while adding $70 billion to the federal deficit. As President Biden has noted, it’s unlikely the measure could get around Senate rules that prohibit the inclusion of non-fiscal policies for which the budgetary impacts are “merely incidental” in a reconciliation bill.

Moreover, West Virginia Sen. Joe Manchin already made clear he would oppose a $15 minimum wage because of the impact it would have in his low cost-of-living state, meaning the proposal wouldn’t have the simple majority needed to pass it.

Nonetheless, most Democrats, including Sen. Manchin, are united in their desire to raise the federal minimum wage, now stuck at a paltry $7.25 an hour. And not just Democrats: polls show solid majorities in favor of a $15 wage. Last November, even as Democratic candidates up and down the ticket got shellacked in a reddening Florida, 60 percent of voters backed a referendum to raise the state minimum to $15.

But as with many ideas that are simple and popular in concept, the apparent consensus breaks down when policymakers plunge into the devilish details: How high should the wage go, how quickly, and how uniformly should it be applied? Does it make sense to mandate $15 an hour in all 50 states, or allow for differences in the cost of living? What’s the impact of a big hike on jobs and small businesses in America’s less prosperous places?

Since Democrats evidently lack the votes to pass a $15 minimum wage, they should get what they can from Republicans who favor more modest increases, and look for other ways to make up the difference.

Specifically, they could expand tax credits designed to make work pay. The model here is the federal Earned Income Tax credit, which matches the earnings of low-wage workers dollar for dollar up to a certain threshold, after which it begins to phase out. It’s both an incentive and reward for work that’s become, after Social Security, America’s most successful anti-poverty policy.

What’s needed now is to move this “work bonus” principle up the income scale, with an eye toward raising incomes of non-college educated workers who have seen meager wage gains in recent decades.

For example, Brookings Institution economist Belle Sawhill has proposed giving all U.S. workers a 15 percent raise up to some annual ceiling, phasing out as earnings rise $40,000 a year.

PPI has proposed to absorb the EITC into an expanded Living Wage Credit that reaches deeper into the heart of the working class. The cost of these new credits could be defrayed by taxing the unearned incomes of wealthy Americans.

Such public subsidies for private work would lift wages for lower-skilled workers without pricing them out of labor markets or forcing the small companies that employ them out of business. And, as tax credits, they could be passed under budget reconciliation rules even without Republican support.

The minimum wage is a venerable policy, but progressives don’t need to put all of their eggs in this particular policy basket. Fortunately, there’s more than one road to establishing a genuine living wage in America that honors the dignity of work of all kinds and keeps working families from falling out of the middle class.