Study: Dems' $15 Wage Would Kill 7 Million Jobs

Rate hike endorsed in platform would be ‘unprecedented’

Minimum Wage
July 27, 2016

The $15 minimum wage backed by the Democratic Party will eliminate more than 7 million jobs, according to a new report.

Democratic delegates approved a party platform backing the $15 minimum wage on Monday. The proposed rate hike follows a multi-million dollar campaign by the politically influential Service Employees International Union.

It would more than double the federal minimum of $7.25 and effectively raise labor costs to more than $18 an hour per employee, after payroll taxes and other mandates. The move would force employers to seek offsets, which could hurt the prospects of workers, particularly inexperienced and low-skilled ones.

"Businesses would respond to these higher labor costs by reducing employment of affected workers by over one-sixth, thus eliminating approximately seven million full-time-equivalent (FTE) jobs by 2021. Forcing employers to pay starting wages of $15 per hour would make many less skilled workers unemployable," labor policy expert James Sherk wrote in a new report for the Heritage Foundation.

Shark is not the first person to voice concerns about the effect of the $15 wage on employment levels. Democratic nominee Hillary Clinton was the only primary candidate to oppose the $15 rate, backing an increase to $12 an hour after consulting with economic advisers and academic economists.

Clinton told a Democratic audience in Iowa that the $15 rate would cause "job loss and dislocation." She instead backed a $12 minimum wage, which a pair of economists estimated would cut 800,000 jobs. She backtracked on that criticism in March, saying "there is no evidence that the minimum wage being increased costs jobs."

Shark found that job losses would be unavoidable if the federal government forced businesses across the country to adopt uniform wages at $15 an hour regardless of regional differences in cost of living. He estimated that the wage hike would hit more than 30 percent of all workers. Not only would it make it more costly to hire new and entry level workers, but it would also drive wages up for more highly-skilled workers that earn above the minimum wage, but below the $15 hourly rate.

Shark called the Democrats proposal "unprecedented" in its scope.

"Federal and state minimum wages typically cover between 4 percent and 10 percent of the workforce," the report says. "The minimum wage has never before come close to covering such a large share of workers. Whether expressed in real dollars or as a proportion of workers directly affected, no state has experienced minimum starting wages this high."

The $15 wage rate would mandate a minimum starting salary of nearly $40,000 for a full-time worker. Employers will be unwilling to shoulder such high costs if the workers are providing value below that market rate. The job cuts and lost employment opportunities will be especially high for entry-level and younger workers.

"Such a high hurdle would make it much harder for less experienced and less skilled workers to find full-time jobs," the report says. "Increasing starting wages to $15 per hour would eliminate jobs and reduce hiring. When a good or service becomes more expensive, consumers buy less of it. Employers react the same way when wages rise."

Michael Saltsman, research director at the Employment Policies Institute, said that Sherk’s report follows the consensus among labor experts, including liberal economists who have been critical of the Fight for $15 movement.

"This report confirms what economists have told us for years: Creating an unreasonably high starting wage of $15 an hour costs jobs. Even Democratic economists understand this —it's unfortunate that the party faithful do not," Saltsman said.

The misgivings among economists have not stopped the $15 minimum wage from taking hold in some of the wealthiest and most Democratic states in the country. California, New York, and Washington D.C., all passed $15 wages in 2016.

Sherk said that extending these policies nationwide would prove more costly, particularly in areas with a lower cost of living than cities such as San Francisco and New York City.

"If Congress raised minimum starting wages to $15—and total hiring costs to $18.61 per hour—businesses would respond by eliminating positions, cutting hours, and looking for new ways to implement labor-saving technology," the report said. "Some companies might have to face shutting down or leaving America entirely to cope with the additional expenses."

Published under: Minimum Wage