The high cost of increasing the minimum wage in Wisconsin to $15
Proponents of a minimum wage increase typically say that their motivation is to lift the working poor out of poverty and to help families by boosting household incomes. A minimum wage of $15 an hour would be tantamount to an hourly pay increase of 107% for workers currently earning the minimum wage.
While those currently toiling at that wage might welcome such an increase, provided they can keep their jobs, it would constitute an enormous increase in cost to employers.
The data show that a high proportion of the state’s workers — fully 38% — earn less than $15 an hour. Our modeling suggests that almost one-third of this group would be at risk of losing their jobs were Wisconsin to quickly increase the minimum wage — which amounts to 350,000 workers.
Half of all job loss would come from the bottom 10% of the income distribution, and 90% would come from the bottom quartile of the income distribution.
Wisconsin’s economy is quite diverse, and job losses from a $15 minimum wage would vary greatly
by industry; we estimate that 50% of all affected workers in food preparation and service would lose their jobs. Other major job losses would occur in building and grounds cleaning and maintenance, personal care and service, sales, office and administrative support, production occupations and transportation and material-moving industries.
The minimum wage is an exceedingly blunt tool for dealing with the complex problem of poverty. Fortunately, we have other methods that are more
targeted and — demonstrably — more effective than the minimum wage to help workers trapped in poverty and who need assistance. For instance, the state’s Earned Income Tax Credit (EITC) could be expanded so that it is more generous at lower income levels, phases out more slowly and goes to more households.
The EITC has been shown to increase labor demand while boosting worker take-home pay, achieving the goals of $15 wage advocates — an increase in the pay of low-income workers — while avoiding its side effects. Of course, an EITC expansion would cost the government money. But it makes more sense to have the state’s businesses and individual taxpayers pay the cost of boosting low-income wages rather than, as per the minimum wage, impose it primarily on retail establishments and other businesses with a preponderance of low-skilled jobs.