April, who works at a pet shop in Minneapolis, makes $11.75 an hour. She loves her job, and it pays better than the federal minimum wage, but not by much. She and her partner get by. They still don’t make enough money to afford a car, but they can manage rent, their phones, and internet, and support their 12-year-old daughter.
Her partner lost his job as a body piercer when the pandemic hit. He went on unemployment insurance for a while, and he and April finally found health insurance through a public assistance program. It was more consistent income than they’d seen in quite some time. “We were able to get a little bit of extra money into our accounts for once. We weren’t going paycheck to paycheck for a while. That was wonderful,” April said. “I think a ton of people were finally out of the poverty level with that money.” Her partner has now found a different job that allows him to work from home.
Life is more or less fine, but April said it would be better if they made more. “We would be able to have a house like a normal family,” she added.
April and her family’s situation is quite normal: In 2019, about 39 million people made less than $15 an hour. When the pandemic hit, that number actually fell — not because people were making more but because low-wage workers became unemployed. The United States is still short millions of jobs, most of which are minimum wage or not much better. Of the nearly 10 million jobs lost in 2020, four out of five were held by people earning $13.67 or less per hour. And for those low-wage workers still waiting for jobs to come back, navigating the unemployment system can be hellish.
The Covid-19 pandemic has laid bare the myriad ways America undervalues and mistreats the working class. The federal government has done quite a bit to help support workers in recent months, particularly with the passage of the $1.9 trillion American Rescue Plan, but those efforts also underscore how much more could be done — not only during moments of national emergency but also in more “regular” times.
A $15 federal minimum wage by 2025 was scrapped from the stimulus package, but Democrats shouldn’t give up on a wage hike or policies aimed at the working class. On unemployment insurance (UI), there’s a chance to enact real reforms and find ways to make the system more robust, especially in a moment where so many people are paying attention. Democrats have a chance now to advance the discussion and put forward policies, such as establishing automatic stabilizers, strengthening standards for states, and offering benefits to a broader swath of workers. Although wages and UI are often treated as separate issues, they’re closely intertwined.
The country has spent a year talking about how important workers are, how the people who keep the economy going are essential. But valuing workers means more than saying thank-you and calling people heroes, or tossing out a lifeline when there’s no other option.
“We want to clap for you and clang pans for you, but we don’t want to pay for you,” said Rebecca Dixon, executive director of the National Employment Law Project. “Some folks’ labor is clearly undervalued, and it has historically been undervalued.”
It’s important to be clear here about who’s impacted the most: Black and brown workers, as well as women, are disproportionately paid sub-$15 wages, and women — particularly women of color — are disproportionately bearing the brunt of job losses. People of color and women, many of whom earn minimum wage or close to it, are also likelier to have been classified as essential workers during the pandemic.
Low wages give lawmakers and businesses an excuse for low unemployment and vice versa
Many business owners and Republicans, and even some Democrats, often say that it’s unfair to expect businesses to pay workers more. They argue that increasing the minimum wage or offering unemployed workers decent benefits while they look for jobs will harm employers that have to increase wages.
The US Chamber of Commerce, for example, has fought against both the minimum wage increase and expanded UI. It warned in 2019 that hiking the minimum wage to $15 “would have disruptive impacts on employers, particularly small businesses, as well as negative effects on the job opportunities for first time and lower skilled workers.” The Chamber of Commerce also argued against extending the $600 in weekly unemployment benefits that expired last July because it would “[violate] the basic principle that an individual shouldn’t make more from government programs for not working than they did working.” It invoked the same argument when advocating against the more recent $300 in extra weekly benefits, too. By the business group’s analysis, an extra $300 a week means that a quarter of unemployed workers will receive more in unemployment benefits than they would from employment.
That may not be surprising when you remember that the federal minimum wage has been stuck at $7.25 since 2009. When wages are that low, it’s easier to argue that UI is too generous.
“If you successfully oppose an increase [to] the minimum wage, then $400 UI boost looks like it is a higher share of earnings at the bottom, which allows you to then further argue against the UI boost,” Arindrajit Dube, a University of Massachusetts-Amherst economist and an expert in minimum wage policy, said on Twitter.
Progressives say that if a business owner is really worried about people preferring to stay on unemployment instead of going to work (a prediction that hasn’t shown up broadly in the data) and can’t find workers, they should just pay them more. It’s an argument many made in 2020, when the CARES Act added the extra $600 in weekly benefits for a few months.
“It was set basically to ensure everyone had at least full replacement under [a] $15 an hour minimum wage. But of course, since minimum wages in some states [is] so much lower, it meant substantially greater than 100 percent replacement rates at the bottom,” Dube told Vox. “Back then, advocates pointed out, ‘If you are worried about replacement rates, raise the minimum wage.’”
This is hardly a new debate — it happens often after recessions.
“It’s something that employers say over and over again every time the economy starts recovering. They say, ‘I can’t get people because they want to stay on unemployment,’” said Andrew Stettner, a senior fellow at the Century Foundation. He then pointed to the counterargument, one made often by Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis. “If you really feel like you cannot find workers, have you thought about raising the wage to the point where people will take jobs?”
Many businesses say they simply can’t pay more. That could be the case for some, but it’s almost certainly not the case for all. The labor share of income has been on the decline in the US since the 1980s.
“We just know it to be true that a lot of firms aren’t paying workers their marginal product — how much they bring into the firm each hour,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and former chief economist at the Congressional Budget Office. “A lot of firms have market power in a way that just gives them a lot of profit, and that profit has to get divided up. … And the less bargaining power the workers have, the less they share in that division.”
The fewer options workers have — such as to find a better-paying job, to negotiate with their current employer for more money, or to stay on unemployment another week until a more suitable opportunity comes along — the lower their bargaining power on any front. Unions could make a difference here, too: A bipartisan bill to strengthen unions has passed the House of Representatives, but unless Senate Democrats address the filibuster, it’s likely going nowhere.
“The less an unemployed person has in benefits, just the more desperate they’re going to be to take that next job that comes along,” Edelberg said. “The more flexibility you have as to what to pay workers, the more you can leverage your power over them.”
There are real debates to be had over unemployment and wages. That doesn’t mean erring on the side of doing less.
A lot of the arguments against increasing wages and improving unemployment benefits contain a kernel of truth: There are some jobs that may go away with a $15 minimum wage, and someone with decent UI may take some extra time to find a better-paying job. But those arguments can be overblown.
Some critics of expanding UI worry that making benefits too generous will keep people from working. For one thing, that’s partly the goal here: Public health experts don’t want businesses operating at full capacity until it’s safe. But there’s also no evidence that people are staying out of the workforce en masse so they can collect their unemployment checks.
“If this was a big disincentive effect, it would show up in the data,” said Heidi Shierholz, senior economist and director of policy at the Economic Policy Institute and former chief economist at the Labor Department. “It’s not like it didn’t disincentivize any individual person from taking a job, but any disincentive effect has been so small that it’s not even detectable in the data.”
The UI system in many parts of the US is hard to navigate and deal with, so it’s not like getting and staying on unemployment is a walk in the park. If anything, UI should be made more robust.
“I find the incentives argument maddening,” said Skanda Amarnath, director of research and analysis at Employ America. “The incentive stuff is not how people behave.”
With regard to wages, there is a nuanced discussion to be had about what raising the federal minimum wage to $15 an hour would do — and Vox’s Dylan Matthews has done a lot of work parsing the evidence. A few years ago, the vast majority of economists believed raising the minimum wage would cost tons of jobs, but the thinking has since shifted, per Matthews:
The evidence we have now suggests that in many cases minimum wages are a net good for workers. Even if a few workers lose jobs, those costs are significantly outstripped by increased wages for workers who keep their jobs. Whether that will remain true with minimums of $15 or more, especially in rural areas, remains to be seen — and if $15 per hour passes nationally, we’ll soon learn a lot more about the policy, and about how labor markets work in general.
A low-wage worker might worry even a small number of job losses could mean they lose their livelihood. “There are going to be losers, and I can imagine even if there aren’t a lot of losers, you would be filled with anxiety that you would be one of the losers,” Edelberg said. And there would be a lot of winners: Millions of workers would see an increase in wages, and the net trade-offs might very well be worth it.
“To put it in perspective, $15 in 2025 would raise workers’ wages in aggregate by $10 billion a year. That sounds like a lot, but the total personal consumption expenditures in the economy are over $14 trillion a year,” Shierholz said. “It is true that businesses do pass on some of the cost of minimum wage increases in terms of higher prices, but if you do the math, it’s not something to be worried about as far as minimum wage policy goes.”
In many parts of the country, the only way to get wages up is through a federal minimum wage hike, Dixon emphasized, and it’s the only way for many people of color who earn low wages to be paid more in line with what they’re owed.
“More than half of Black folks live in the South, so when we’re talking about raising the minimum wage, that’s the only way it’s going to be raised in the South,” Dixon said. “It’s really the only way that this huge segment of Black and brown workers are going to get a raise.”
Mississippi, which has no minimum wage, is one of the poorest states in the nation. It also pays the lowest unemployment benefits, according to FileUnemployment.org. “It’s those states that get helped the most when the federal government takes action,” Dixon said.
Democrats have warned that the risk of boosting the economy is doing too little, rather than too much. There’s a similar risk in terms of helping workers materially improve their lives.
“We just had this period of very unequal economic growth coming to a period of unequal recession,” the Century Foundation’s Stettner said. “We need some levers to start redistributing that money to people that are working, that are going to come back to work.”