By Noah Smith / Bloomberg Opinion
The Democrats in Congress will probably fail to pass a federal $15 an hour minimum wage. Amazingly, this might end up not mattering that much. The drive for $15 has succeeded simply by resetting Americans’ idea of what a reasonable wage should be.
In an age of grass-roots political campaigns, the Fight for $15 has been startlingly effective. It succeeded in getting a $15 minimum wage passed in Seattle, in California, and in a variety of other cities and states. Its message was simple, focused and — at least in the places where it has prevailed — reasonable.
In addition to having a catchy, alliterative slogan, Fight for $15 had some pretty decent economics on its side. The fact that “teenagers like cheeseburgers,” in the words of economist John Kennan, probably reduces the effect of minimum wage hikes on employment; the increased income from higher minimum wage feeds back into the economy, raising labor demand. And as economists have increasingly realized in recent years, minimum wage can help counteract employers’ power to hold wages below their efficient market value. It can still hurt employment, but the threshold for doing so is probably a lot higher than opponents worry.
At the national level, Fight for $15 hasn’t yet managed to chalk a win. The minimum-wage proposal was struck from President Biden’s recent covid-19 relief bill on the grounds that it wasn’t a fiscal measure and thus not eligible to be passed through budget reconciliation. Since reconciliation is the only way to get around the filibuster, that means that a federal $15 minimum wage has only a slim chance of passing during Biden’s presidency. Worries that $15 would go too far in low-cost areas will mean sufficient opposition at the federal level that we probably will not see this sort of bill pass soon; or if a wage hike does pass, expect something significantly less than $15.
Yet despite this failure, Fight for $15 is winning a different way: by altering the norms of wage-setting in the United States. Fast-food merchant McDonald’s Corp., the archetypical low-wage employer, just announced that it will raise its average wages to $15 an hour by 2024. This follows a similar move by Chipotle. Amazon raised its minimum wage to $15 back in 2018. Costco, Starbucks, and a variety of other companies have similar policies. Some big companies like Walmart are still fighting against the new $15 standard, but you can definitely feel the tide turning.
Notice that not all of these wage increases are the same; some represent average company wages, while others represent a minimum floor for pay. But all of them involve the same number: $15. This suggests that the psychological impact of that number has exerted a psychic power over corporate America, and over workers’ wage demands and expectations. Collectively, we’ve simply decided that $15 is the standard minimum for what any job ought to pay.
Economists have long recognized that human psychology plays an important role in the setting of wages. Nobel winner George Akerlof theorized that employers and employees saw wages partially as a sort of “gift exchange”: a fair day’s work for a fair day’s pay. Some have argued that wage norms shifted up in the 1960s boom and down again in the 1980s recessions, shaping the trends for years to come.
It’s possible that before covid, these norms were already shifting, helping — along with Fight for $15’s legal victories in states and cities — to drive up wages at the bottom of the distribution. In April, wages rose at an unusually rapid clip in nominal terms. In real terms, those gains were eaten up by accelerating inflation; real wages haven’t budged in 2021 yet, and it will probably be months until they do. But remember that the $15 number isn’t inflation-adjusted either, so it’s possible that nominal wages really are rising to meet this psychologically important number.
The spread of the $15 standard is a testament to the power of the Fight for $15 campaign, but also to its limitations. Because $15 isn’t adjusted for inflation, a period of rapid consumer prices increases could render the wage victory useless in terms of increasing workers’ real purchasing power. In fact, if inflation stays high, the $15 anchor could ultimately prove counterproductive, making it hard to raise wages even higher to keep up with prices; “fight for $18.50” just doesn’t have the same ring.
Hopefully inflation is a blip, and the $15 wage norm has taken deep root in the American psyche. The 2010s saw low-wage workers start to make up some of the ground they had lost in the wage stagnation of the 2000s, but it wasn’t enough. If the power of human psychology can be harnessed to change what it means to pay a fair wage in America today, so much the better.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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