Raising the Minimum Wage Could Give Democrats the Economic Edge

April 19, 2016

The surge of states and cities enacting $15 minimum wages masks the ongoing debate within the Democratic Party about their economic impact. In the face of Republicans saying that raising the wage kills jobs, Democrats like New York’s Governor Andrew Cuomo are forcefully making the opposite case: raising the minimum wage promotes job creation and is good economics. Others, like California Governor Jerry Brown, have accepted the Republican premise that minimum wage hikes can slow down the economy. How this debate gets resolved has deep implications for whether voters see Democrats as having an economic agenda that goes beyond fairness to include growth and job creation.

Despite decades of better economic performance under Democratic administrations, the public continues to give Republicans an edge on which political party is better for the economy. One reason is that Republicans have a consistent theory and narrative of how to grow the economy: businesses are the job creators and government should not get in the way of markets. Democrats, by contrast, talk about economic fairness – and the public overwhelmingly sees Democrats as standing on the side of the middle class – but talk much less about how to grow the economy. When they do, it is often backing policies like tax breaks and subsidies for business, reinforcing the Republican narrative.

Now some Democrats, backed by economic research, are making the case that raising the minimum wage boosts jobs and economic growth by adding consumer purchasing power to the economy. They understand that if Democrats can be the party of fairness and growth, it will take away a key Republican strength with voters.

The debate within the Democratic Party on this issue – as with so many others – can be encapsulated by the differences between Hillary Clinton and Bernie Sanders. Clinton supports a $12 minimum wage nationally, expressing concern that higher amounts could adversely impact the economy. In response to a question in a debate last November about the impact of raising the minimum wage and job loss, she offered an apologetic defense, “And the overall message is that it [raising the minimum wage] doesn’t result in job loss.” Her recent admission that she would sign a $15 minimum wage is the opposite of the kind of positive message that Sanders and others are making.

In that same debate last fall, Sanders made both the moral and the economic case for raising the minimum wage to $15 “over the next few years.” After saying “It is not a radical idea to say that if somebody works 40 hours a week that person should not be living in poverty, Sanders argued, “When we put money into the hands of working people they’re gonna go out for our goods. They’re gonna go out for our services. And they are gonna create jobs in doing that.”

Cuomo made the same case in New York’s, asserting, “Our proposal will lift families out of poverty and create a stronger economy for all…” He released New York State Department of Labor data at press conferences around New York, touting $15.7 billion that would be reinvested in New York’s economy from an increase in consumer spending.

Like Cuomo, Los Angeles Mayor Garcetti argued that the goal of the $15 minimum wage was “to create broader economic prosperity in our city and because the minimum wage should not be a poverty wage in Los Angeles.”

Garcetti and the City Council relied on a study from researchers at the Center for Wage and Employment Dynamics a U.C. Berkeley to make the economic case. Unlike the New York study, the Berkeley researchers looked at both the negative (higher prices) and positive (higher wages) impacts on consumer spending from a $15 an hour minimum wage in Los Angeles. On balance, the study concluded that the benefits outweighed the loss by more than two to one, for a net increase in consumer spending of $1.3 billion in 2019.

The Berkeley researchers found a very small negative impact in Los Angeles City itself (3,472 jobs), and a small net gain in Los Angeles County (5,262 jobs), as spending by people employed in L.A. extended beyond the City limits. But the overall impact on L.A. workers’ incomes was unambiguous: an average boost in earnings of 30.2% ($4,800) by 2019, for 609,000 workers (41.3 percent of the covered workforce.) The University of California researchers have reached similar conclusions for minimum wage increases in other localities in California and in New York State.

By contrast, California Governor Jerry Brown resisted a $15 minimum wage, raising concerns about the impact on business and the economy. His hand was forced when advocates collected enough signatures to place a $15 initiative on the ballot. To avoid a popular vote, business lobbyists and the Governor agreed to legislation that put the $15 minimum wage increase on a slower timetable, with a provision for further delay in case of an economic downturn.

It took the Democratic leader of the California State Senate to make the economic case for the minimum wage. President Pro Tempere Kevin De Leon welcomed the legislation, saying “I’m pleased that we have a deal in place that will raise living standards for millions of Californians, while also spurring new demand for goods and services and helping businesses thrive.”

Opposition by the Republican State Senate in New York forced Governor Cuomo to accept a $12.50 minimum wage outside of the New York City metro area. The same dynamic played out in Oregon with less national attention, where Governor Kate Brown portrayed the agreement to set the minimum wage on three geographic tiers, from $14.75 in Portland to $12.50 in rural counties, as a compromise between business growth and fair wages.

Just released findings of research I commissioned underscore the importance of making the need to combine the moral and economic arguments for raising the minimum wage. Topos Partnership conducted a number of experiments this past February to test what message frame most successfully bolstered support for a $15 minimum wage, in the face of effective opposition arguments that raising the minimum wage will result in businesses will “cut off hours, lay off workers or raise prices.” The research found that only a response that included both the moral and economic argument for increasing the minimum wage statistically increased support, whereas arguments that made either case in isolation failed to do so.

The debate within the Democratic Party on the economic impact of raising the minimum wage has important implications for other economic issues and for how people understand what fuels economic growth. In another finding from the Topos research, the public – if forced to choose – stated a preference for growing the economic pie to slicing the pie more fairly. Without an underlying belief that policies that boost incomes also power economic prosperity, Democrats continue to be limited to arguments about fairness.

This year, the presidential debate highlights voters’ concerns about stagnant wages and the nation’s economic position. Republicans continue to argue that the answer is helping the job creators, with cuts to business taxes and regulations. If more Democrats begin to press their economic argument about growth and prosperity along with the moral argument, they will take away one of the Republicans’ few advantages with voters on domestic issues. Added to the established Democratic advantage on social issues and on emerging demographic trends, that could help cement a long-term shift in voter preferences and the passage of more progressive economic policies.