The Pandemic Proves the Value of Raising the Minimum Wage

(Bloomberg Opinion) -- Most Republicans in Congress perennially resist increasing the minimum wage, citing economists who say businesses would have to eliminate workers and raise prices. That would stoke inflation and undermine the economy, they say.

But if there was ever a period testing those assumptions and showing why raising the federal hourly wage gradually to $15 (as President Joe Biden proposes) would improve the well-being of just about everyone — capital and labor alike — it was the 2020 global pandemic, when national unemployment skittered to almost 15% in April.

It was a disaster last seen during the Great Depression. Not only did women, African Americans and Latinos — historically the least compensated — suffer the most from Covid-19. Their livelihoods were especially hard hit as hospitality, travel and traditional retail business collapsed.

The “Raise the Wage Act” was inspired by New York City fast-food workers’ fight for $15 an hour in 2012. Between 2012 and 2020, the 29 states that approved minimum wages above the federal level expanded faster with bigger increases in personal income, employment and consumer spending than the 21 states resisting anything above the minimum $7.25 last raised in 2009, according to data compiled by Bloomberg.

Then came the coronavirus, shuttering all but essential services in many states. U.S. non-farm payrolls fell as much as 15%, the worst setback since such data was collected in 1939, wiping out 22 million jobs. Unemployment spiked to 14.8% in April from 3.5% last February, the biggest increase since such data was first compiled in 1948.

When the job market suddenly deteriorated, the low-wage states — led by Utah, Idaho and Georgia — pulled marginally ahead in employment growth over a five-year period solely because they had a lot less to lose during the pandemic year. Yet the economies of the higher-minimum wage states remain substantially more robust than the rest of the U.S. and poised to regain their prior four-year advantage for labor because of the diversity of their economies.

California, whose five-year-old Fair Wage Act proved benign for business, still leads the nation with 13% per capita growth in gross domestic product since 2016. Nine of the top 10 states setting the pace for U.S. growth are similarly committed to the higher minimum wage.

Only three of the top 10 states with the fastest-growing personal income (Utah, Idaho and Georgia) have been in the refuse-to-raise-the-minimum-wage crowd since 2016. Six of the 10 slowest-growing states for personal income remain opposed to raising the minimum wage: North Dakota, Oklahoma, Wyoming, Louisiana, Mississippi and Kentucky, according to data compiled by Bloomberg.

Since Washington state voted to increase its minimum wage in steps five years ago, its retail business contribution to U.S. GDP increased $17 billion, or 51%, more than any other state, according to data compiled by Bloomberg. Among the nation's top 10 retailing performers, seven have approved higher minimum wages.

Although employers in the 21 states resisting minimum wage increases showed better employment data during 2020 -- the worst year for job losses in modern times — they still lagged behind the 29 states in growth, personal income and, most important, the retail business, which employs millions of low-wage workers.

That dichotomy helps explain why Seattle-based Amazon Inc., the No. 2 employer among publicly traded companies, continues to outperform No. 1 Walmart Inc., the Bentonville, Arkansas-based retailer. Since Amazon raised the minimum wage to $15 in 2018, the online everything store has doubled its employees to 1.3 million, according to data compiled by Bloomberg. Walmart's workforce of 2.2 million was little changed during the same period. Since 2016, Amazon increased its payroll five times while Walmart saw a 4% decline.

During the past five years, when Amazon's employee efficiency, measured by net income per employee, advanced six times, Walmart experienced a decline of 4%. Now even Walmart's historical resistance to the $15 minimum wage shows signs of diminishing.

The world's largest retailer earlier this month pledged to raise wages to an average of more than $15 per hour, up from a current average of more than $14 hourly, affecting about 425,000 employees out of some 1.5 million U.S. workers — proving, if nothing else, that increasing the minimum wage can't be bad for business. 

 (With assistance from Shin Pei and Keith Gerstein.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Matthew A. Winkler is Co-founder of Bloomberg News (1990) and Editor-in-Chief Emeritus; Bloomberg Opinion Columnist since 2015; Co-founder of Bloomberg Business Journalism Diversity Program in 2017. During his 25 years as Editor-in-Chief, Bloomberg News was a three-time finalist and winner of the Pulitzer Prize for Explanatory Reporting and received numerous George Polk, Gerald Loeb, Overseas Press Club and Society of Professional Journalists and Editors (Sabew) awards.

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