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Weighing the Pros and Cons of a $15 Federal Minimum Wage

Costco Wholesale Corp. CEO Craig Jelinek recently announced that the warehouse club chain would be raising its starting wage to $16 an hour.

The world’s second-largest retailer, which employs roughly 180,000 workers, upped its starting pay to $15 an hour in 2019. More than half of Costco’s hourly employees make north of $25, Jelinek told the U.S. Senate Budget Committee during a Feb. 25 hearing on pay in the retail and fast-food industries.

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Jelinek was careful to point out that this latest increase was rooted in bottom line-related reasons.

“I want to note this isn’t altruism,” Jelinek told the group, which also included representatives from McDonald’s and Walmart. “At Costco we know that paying employees good wages … makes sense for our business and constitutes a significant competitive advantage for us. It helps us in the long run by minimizing turnover and maximizing employee productivity.”

As Jelinek delivered his testimony, the U.S. Congress continues to debate whether to raise the federal minimum wage to $15 from $7.25 — where it has remained since 2009.   

Within days of gaining control of the White House and Congress in January, Democrats reintroduced the President Joe Biden-backed Raise the Wage Act, which would gradually elevate the federal hourly minimum to $15 by 2025.

Proponents of the measure say incrementally raising the minimum wage to $15 over the next four years would be a boon to employees and employers alike.

The Economic Policy Institute, for example, posits that such an increase “would generate $107 billion in higher wages for workers and would also benefit communities across the country. Because underpaid workers spend much of their extra earnings, this injection of wages will help stimulate the economy and spur greater business activity and job growth.”

Others argue that a $15 minimum would actually have the opposite effect.

Steve Kaplan, professor of entrepreneurship and finance at the University of Chicago Booth School of Business, calls a $15 wage floor “a terrible idea,” telling ABC News that it will displace workers and cut investments in companies.

“The big challenge today is we have technology that’s replacing people. With that headwind of technology, the worst thing to do is to make jobs more expensive. Technology is already taking jobs,” Kaplan told ABC. “What you ought to do is make it easier to hire people.”

Advocates for a $15 federal minimum suffered a setback on Feb. 25, when Senate parliamentarian Elizabeth MacDonough said that a $15 federal minimum wage could not be included in the $1.9 trillion stimulus bill currently before Congress.

Democrat lawmakers had included the minimum wage provision in its most recent coronavirus relief package. But, MacDonough ruled that the stipulation doesn’t comply with the rules that govern budget reconciliation; the process that would have enabled Democrats to pass the package without Republican votes.

Deirdre Macbeth, content director at WorldatWork, sees a host of factors to weigh in the debate over whether to establish $15 minimum wage across the board.

For example, $15 an hour would provide workers with something closer to a living wage, boost the economy by giving workers increased buying power, enable employees to increase investments in retirement and other savings, and increase Social Security funding through additional payroll taxes collected, said Macbeth.

A $15 minimum wage would also have a positive effect on workplace culture and morale, she said.

“Employees will be grateful and more invested in their work, which in turn benefits the business.”

On the other hand, Macbeth predicts that a $15 minimum would lead to a spike in operating costs for small business owners, creating higher prices for goods and services and forcing business closures, layoffs or reduced working hours, as well as altered or reduced benefits offerings.

A $15 minimum wage would also leave some first-time workers unable to find entry-level jobs, with less experienced job seekers competing with older and more seasoned candidates, said Macbeth, adding that “workers, businesses and economies in areas with low costs of living would be the most negatively impacted.”

Ultimately, Macbeth believes that a federal minimum wage hike is “long overdue,” but doesn’t foresee the current hourly minimum of $7.25 being raised to $15. Nor does she think it should be.

“The federal minimum wage should serve as a ‘minimum floor’ for all states, but since the cost of living for each state — and the regions within each state — vary dramatically, it needs to be an amount that is economically feasible for all 50 states.”

And, while $15 might be feasible in states such as California and New York, that number is likely not viable in other states where costs of living are lower, such as Iowa or Wyoming, said Macbeth, who specializes in total rewards and HR compliance as well as regulatory issues.

“States should be the ultimate decision maker and determine what further increases from the federal minimum wage rate are warranted — as more than half of [all U.S.] states have already done — based on the unique economic realities and living conditions of workers in their state.”

About the Author

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Mark McGraw is managing editor of Workspan.


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