By Joshua Gill
President Barack Obama proposed on February 11 a minimum wage reform that would raise the minimum wage from $7.25 to $10.10. This question and answer article explores how the reform, if implemented, would affect Baylor students.
Q: From your perspective, what economic factors have led up to this proposed minimum wage reform to raise the minimum wage from $7.25 to $10.10?
A: Well, income inequality is increasing in the U.S. Since about the 1970s, the income levels of just about everyone but the super-rich, the one percent, have remained flat, while the income of the one percent has skyrocketed. President Obama and some democrats in congress feel that the government should do something about that and that’s a way for the government to take a bite out of the income inequality. I think that’s a big emphasis, especially in the president’s remaining time in office. That’s something that he’s pledged to emphasize – income inequality as an issue.
Q: What benefits do you see coming from the proposed minimum wage reform?
A: Well, if you’re making minimum wage, that’s a great benefit to you. Among people who don’t make the minimum wage, the reason why they should care is that the folks that tend to make the minimum wage tend to, by necessity, spend their entire wage on consumer products. So, you’re putting more money in the pockets of people who are going to spend it and that’s a benefit in an economy that depends on consumer spending.
It would help reduce poverty. Just about every study on that has said it will reduce poverty.
Q: What drawbacks to this reform do you see?
A: Well, any time you artificially tamper with the market – and that’s what minimum wage does – it sets an artificial floor on the market. There are going to be some economic distortions. There’s a consensus that it will lead to at least a slight loss in a number of jobs. I don’t want to overstate that because there is a lot of disagreement between economists on the actual number of jobs. I think that’s probably the best way to summarize the debate on that.
Q: The report from the nonpartisan Congressional Budget Office states that this reform would cost 500,000 jobs by 2016. However, it also states that the reform would raise income for about 16.5 million workers by 31 billion dollars, potentially pulling around one million people out of poverty. How do these two predictions reconcile?
A: The CBO, that’s a good source. It’s nonpartisan. What the CBO is saying is that it’s going to produce winners and losers. The 16.5 million who see their wages increase are the winners, but the 500,000 jobs lost are the losers. The net effect is that it would help more people than it would hurt. I think it’s good for everyone to know that about the debate – whenever there’s a change in policy it’s always going to produce winners and losers.
Q: What sort of jobs will the 500,000 lost jobs be?
A: So, about 60 percent of those earning minimum wage are in service occupation. So, if we’re trying to predict who’s going to lose out, it’s primarily going to fall on service workers because they’re the group that fills out the minimum wage workers mostly right now. That would be waitresses, waiters and janitorial staff — someone who works at a movie theater selling tickets – that’s an example. Service workers at big retail stores. Those types of jobs.
Q: How would this reform affect Baylor students looking for or holding jobs while enrolled in college and students looking for jobs after graduation?
A: I think it would benefit them. My guess is it falls under $10.10 an hour for most of them. But again, there’s the winners and losers thing. It might be tougher to find those jobs for those out looking, especially if businesses start scaling back and can’t afford to hire more workers. So, it depends. For those after graduation I would expect it to have less of an impact just based on the average income for those with a college degree. It’s unlikely for Baylor graduates to be earning minimum wage. It’s probably more likely to affect students looking for jobs while in college.
Q: Would such a reform have any effect on the value of an undergraduate degree? If so, what sort of effect?
A: Probably not. That’s kind of a disappointing answer. It’s possible that the minimum wage reform might create a creeping-up of other wages. I don’t think that relates directly to the value of a college degree other than the possibility of a general wage creep or wage boost for everyone.
Q: Would such a reform have an effect on the value of certain majors?
A: Those are hard to predict. Anything I say would just be pure speculation. It probably goes back to the question before that. It’s unlikely that anyone with a college degree would be hovering at or around minimum wage.
Q: Do you agree with the Council of Economic Advisor’s chairman Jason Furman’s statement that “The bulk of academic studies have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent”?
A: Yeah, I think that’s consistent with my answer to one of your earlier questions on employment. It’s going to lead to some job loss – not massive job loss, but some job loss. But I definitely agree with his statement that there’s a lot of disagreement. So yeah, I would go back to the CBO statement that there will be some job loss, nothing massive. And I think from a political standpoint that you’re likely to hear the President repeat that line, that there’s likely to be a negligible effect.
Q: How have minimum wage increases affected college students in the past?
A: I guess the bigger answer here is minimum wage laws tend to have less of an effect on those with a college education. The effects on college graduates are very minimal simply because they are not the workers that are typically earning minimum wage.
Q: Do you think that this reform will overall, be beneficial, harmful or negligible in its effect on Baylor students?
A: I think, back to my winners and losers answer, who it’s going to affect are those looking for summer jobs or jobs while they’re here. So, if it does happen, the winners would be those who are currently working and anyone making less than $10.10 an hour, and would get a raise. The losers would be those who are looking for jobs while businesses might not be hiring. Again, I don’t want to overstate this and say that there’s going to be massive reductions and job loss. If this happens, and that’s a big “if,” there might be a slight slow down in hiring of minimum wage workers because, if this happens, businesses might have to scale back more.
So, if I had to make one grand prediction, there would be a slight net benefit, but it all depends on whether you’re the person getting the raise or the person finding a job.