Now seen engrained in western liberal democratic values, it is easy to forget that the newly formed Low Pay Commission only introduced an initial £3.60 hourly wage floor, on the 1st of April 1999 in the UK. Over the pond, it was 1938 and the depression recovery that catalysed a $0.25 minimum wage, but the debate lives on. Joe Biden, now looking to have secured the Presidency, thinks he has the answer in his 15$ minimum wage. Unfortunately, he does not. In light of the late Prime Minister George Canning’s famous statement, “I can prove anything with statistics except the truth,” we take a look at not only the statistical analysis, but the practical ground to reject Joe Biden’s minimum wage hike.

Long has it been a cry of the democratic left to raise the federal minimum wage. Bernie Sanders in 2016 included it in his platform, later persuading the democratic party itself to add it to theirs. The arguments for it are convincing, with its flagship ‘Fight for $15’ pressure group formed on the haunting statement, “We can’t feed our families, pay our bills, or even keep a roof over our heads on minimum wage pay.” Who could possibly argue with that? 

Socrates himself, as it seems. Often branded an elitist, Socrates’ arguments regarding the pitfalls of the democratic process ring true, even in the great experiment of America. Socrates argued that people seeking election, in this case Biden, could exploit our desire for easy answers. Distinguishing between a sweet seller and a doctor as metaphors for democratic candidates, Socrates argued that left to our own devices, we would of course choose the sweet seller as sweets are preferable, despite the fact the doctor may incur short term pain, for which is beyond our understanding, in the interest of the long term prosperity of increased health. Whilst metaphors, they ring true in contemporary politics. After all, the slogan ‘Take back control’, the subject of the 2016 Brexit election, was much more about an easy answer to the dilution of identity caused by globalisation than it was control over who gets a share of North Sea cod. The 15$ Minimum wage is positioned firmly in the sweet seller category, and America must wake up.

It is no secret that Biden’s key voter base this year is the young, who studies have shown have a minimum wage elasticity of -0.1 to -0.2 (change in min, wage/ change in unemployment) . Now sitting at $7.25 per hour, the 15$ minim wage would represent an 106% increase. The consequence? Unemployment among the young increasing by between 10.7% and 21.4%, a decimation of the ability to feed families, pay bills and keep a roof over head to the very strata of the US population that Biden relies on for his voter base. Whilst this doesn’t account for the gradual increase proposed by Biden, this is without talking into account the COVID recession.

However, it is all too easy it is to take apart government policy by citing various studies without looking at the practical alternatives to Biden’s proposed minimum wage increase. Sweden, Denmark, Iceland and Norway, all rated the maximum rating for workers rights by the International trade union confederation, are synonymous with protecting the integrity of workers. However, their similarities are not restricted to this premise. All four countries lack any government mandated wage floor. Norway, Iceland, Sweden and Denmark, the 2nd, 4th, 8th and 11th most economically equal countries in Europe (by gini coefficient) set de facto, regional and sector specific ‘minimum wages’ through collective union bargaining. Consequently, unemployment caused by productivity that doesn’t justify the minimum wage is avoided, as the localised bargaining entity understands where this threshold sits.  The outcome? Maximised wages with minimised unemployment, if only it was that easy. Moreover, evidence shows there are also considerable distributional benefits with this method, with the Swedish minimum wage hovering at 60-70% of the median wage, compared to the US hourly minimum wage which sits at an embarrassingly poor 38% of the average hourly rate.

Yet, in realty in the US it could be that easy if the ‘sweet seller’ policy of a federal 15$ minimum wage was dropped, and sector/state specific unions created in order to set se facto minimum wages through collective bargaining. Nicolas Williams, researching for ‘Applied Economics’  found that, whilst in specific US regions minimum wages did increase employment rates, in others only a 10% increase could increase teenage unemployment by 7%. Hence, the case for sector and regional specific minimum wages to increase minimum wages where it is warranted is also notable. Rather than an article against a minimum wage, this is an article arguing for a minimum wage that works for all - not just those whose productivity justifies the wage, and hence aren’t forced into unemployment as a result of the wage floor as many young people at the start of their careers are. Whilst the former Federal Reserve Chairman correctly identifies that in the field of minimum wage legislation, ‘There is no consensus among economists… economists are all over the place on this,” the field of reality paints a different picture. Seattle, the flagship ‘policy lab’ for a gradual increase in the minimum wage to reach 15$ next year has seen decreased working house, increased prices, less small businesses and hence consumers that are worse off due to the interdependence of cost and choice. 

Nevertheless, Biden will continue pedalling the policy, and the US population have fallen gracefully for the noble lie. The 15$ federal minimum wage, as HDP Lee correctly identified in his narration of Plato’s ‘The Republic’, a critique of democracy, is merely ‘telling the right lie to the people’. Whilst we would stop short of calling Biden a populist by today’s standards, his minimum wage policy seems to to be defined by the very distinguishable quality rife around Europe: simple answers to complex problems. Hence, Biden’s blanket minimum wage policy is far from a blessing, yet, like the ‘sweet seller’ policies that Socrates warned us of, is all too enticing. 

Freddie Cooke

Update:

January 2021 research from David Neumark, a world renowned minimum wage economist from the University of California concludes: ( “There is strong and consistent evidence of negative employment effects for teens, young adults, the less-educated, and directly-affected (low-wage) workers, with the estimated elasticities generally larger for the less-educated than for teens and young adults”)