House Democrats are pushing the Raise the Wage Act, which would increase the federal minimum wage from $7.25 to $15 an hour by 2024. The bill promises to reignite the debate over whether government mandates or economic growth are the most effective means to raise workers’ wages. But the discussion may be superfluous, because so many major employers across the country are already raising wages and the paychecks of lower-income Americans are showing significant gains.
While there is some dispute in the economic literature regarding the employment effects of minimum-wage increases, my view is informed by my experience as chief executive of CKE Restaurants for more than 17 years, running a business that employed tens of thousands of employees at every wage level.
I found that when government artificially increases wages above the going market rate, employers react by reducing labor costs so they can stay in business. That generally means reducing the number of employees and hours worked (and contemplating the benefits of automation). I also found that during periods without meaningful job growth, employees are in the unenviable position of competing against one another for the available jobs. When employees compete for jobs, wages stagnate or decline, because companies have little incentive to increase them.
Government policies that encourage economic growth produce a different result. As businesses grow, they require additional employees to staff their expansion. Rather than worrying about shrinking their payrolls, companies think more about how to attract the employees they need. With the pace of the current economic surge, even increasing automation has been insufficient to meet the demand for employees.
Employers are well aware that the best employees generally go where they are paid the most. So when employers compete for employees, wages increase.
The Republican tax cuts of 2017 and the Trump administration’s focus on deregulation and domestic energy production have accelerated U.S. economic growth. As a result, employers are aggressively competing for employees, rendering attempts to raise the minimum wage to $15 by 2024 largely moot. The evidence is hard to miss.
Last month, big-box retailer Costco announced an increase in its minimum wage for store workers to $15. Amazon raised its workers’ wages to $15 in November; Target has committed to a $15 minimum wage by 2020. To remain competitive in the jobs markets, other employers will need to follow suit, and well before 2024.
Even McDonald’s has seen the light: Noting that its starting wage is already more than $10 an hour — and with wages rising — the company recently withdrew its support for lobbying efforts opposing a minimum-wage increase.
The competition for employees is showing up in economic data. In February, the Bureau of Labor Statistics reported that the percentage of Americans with jobs stood at 60.7, the highest percentage since December 2008. The labor participation rate, the number of people working or actively looking for work, was more than 63 percent for the third consecutive month. The last time that happened was 2013 (and back then, the trend was heading down).
With more Americans working, employers are finding it difficult to fill open positions. In January 2017, when President Trump took office, the number of people unemployed exceeded job openings by nearly 2 million. The relationship has dramatically flipped since then: In January, the most recent month for which the data is available, job openings exceeded the number of people unemployed (actively looking for work) by more than 1 million.
The increased competition for employees is driving wage growth. For February, the Bureau of Labor Statistics reported a 3.4 percent year-over-year increase in hourly earnings. It was the seventh consecutive month with wage growth clocking in at a pace of 3 percent or better. Before 2018, wage gains last reached 3 percent in April 2009.
Workers in the sectors associated with the minimum wage are doing even better. Production and non-supervisory employees in the retail sector and leisure and hospitality sector saw their hourly earnings rise 5 percent and 4.6 percent, respectively. The rise makes sense because, for the first time in decades, it is harder to find blue-collar workers than white-collar workers.
A recent economic research report from Goldman Sachs confirmed this impact. It found that wages have “noticeably” increased over the past year, with “significant acceleration” among lower income groups and “relatively weak growth” for those with higher incomes. Wage growth for those in the lower income group (the bottom 50 percent) is now above pre-recession levels.
No wonder moderate Blue Dog Democrats recently began reconsidering support for the Raise the Wage Act, according to Politico, reducing the chances that it will come to a vote on the House floor. There’s no rush. Improved growth is lifting working-class wages without a federal government mandate and at a pace not seen in at least a decade.
Andy Puzder is the former chief executive of CKE Restaurants