In arguing for his $15 minimum wage hike, Bernie Sanders skews an economic study to say the increase would reduce federal assistance and welfare.
“Increasing the min. wage to $15 an hour would reduce spending on food stamps, public housing and other programs by over $7.6 billion a year,” Sanders tweeted.
When Politifact questioned the statement, they rated it as “mostly false.”
Sanders’ statement failed for two reasons: The study he cited analyzed a minimum wage increase to $10.10, a figure 49 percent lower, and his desired increase is uncharted territory. Many economists are already skeptical of minimum wage increases, and one as dramatic as $15 is riskier.
“No such study of a $15 wage hike exists — and economists say there’s good reason to believe that jobs lost from a wage hike that large could be significant. It might even be big enough to increase the cost of government assistance, not lower it,” Louis Jacobson wrote (emphasis in original).
The Sanders argument assumes that the wage boost will crowd out government assistance spending. He’s right in that the majority of government assistance goes to the working poor, but he misunderstands how wages operate in a market. Businesses don’t calculate how little they can pay workers and get the government to subsidize their workers. Competition, labor costs, productivity, and revenue determine wage levels.
Therein lies the problem with the $15 minimum wage proposal. It ignores how businesses work in reality. High-productivity businesses can absorb the costs, and if the wages attract better workers or motivate current ones, it could benefit workers and employers. However, for businesses with a narrow profit margin and high labor costs, they have two options: raise costs or fire workers.
Previous minimum wage increases have been smaller and gradually phased in. A $15 wage is a dramatic increase, especially in rural areas and small cities. The empirical evidence doesn’t yet exist, and economists have been skeptical that government mandates can boost productivity.