The US federal minimum wage has been stuck at $7.25/hour since 2009, and it has been there because of a law passed in 2007 as one of the big promises of Democrats’ incredibly successful 2006 midterm campaign. There has of course been inflation since then, though not nearly as much as the average 12 year period in postwar American history thanks to secular stagnation/demographic issues/macroeconomic cowardice. In 2012, the Fight For Fifteen campaign launched as a campaign to raise the federal minimum to $15/hour, and it has been fairly successful as grassroots left-wing movements go, winning the day in a lot of blue states and even richer red states like Florida. It was introduced by Bernie Sanders as a campaign pillar in 2016 to counter Hillary Clinton’s $12/hour promise, and in the Trump era it eventually became a standard Democratic Party platform demand. As I write this, the fate of whether or not it will become reality at the federal level is about to be determined by the person with the highest power:fame ratio in America, the Senate Parliamentarian, as they decide if a minimum wage increase can count as part of a budget reconciliation bill. At this point, as someone who has evolved my views on this over time, it’s worth going over whether a minimum wage increase is worth it.
The Econ 101 View
The common story told in intro microeconomics classes everywhere is that the minimum wage is a price floor, and if you look at a basic supply-demand graph with a price floor set above the equilibrium price. You just create a surplus (in this case of workers) with more people willing to work than businesses willing to hire, and this creates unemployment and deadweight loss in the labor market by denying people who are willing to work at lower wages than the minimum of jobs.

This has a powerful logic to it, and a generic version of this sort of argument can be quite accurate in other markets, like, say rent controls or agricultural price floors. But the labor market is exceedingly weird, you are dealing with actual human beings instead of avocados here, and there are plenty of extra complications that brings into the issue. You can offset a higher minimum wage with lower health benefits as a company, labor demand might be fairly inelastic because of the necessity of labor and the relatively low cost of minimum wages, and labor markets tend to be far less competitive and efficient than most markets because of the difficulty of matching up a human person with a business (usually) physically near them willing to hire them as opposed to just growing an avocado. The theoretical arguments though are ultimately less important than hard evidence, and the evidence paints a different picture than Econ 101.
The Evidence
In 1993, David Card and Alan Krueger released a landmark paper looking into the employment effects for low wage fast-food workers in Pennsylvania and New Jersey after New Jersey raised the minimum wage from what was previously the same as Pennsylvania’s. The idea is that if you compare like areas across the border (say, Philly suburbs in PA vs Philly suburbs in NJ) you would only see the changes that would be reflective of state-specific changes, like the minimum wage. Card and Krueger found that employment actually increased in restaurants in New Jersey that had to raise their wages in response. Since then, reams and reams of papers have been written using similar study design, and a recent Journal of Economic Perspectives article by Alan Manning finds that the average minimum wage employment effect found in the different model designs investigating this is, within a rounding error, zero. There is presumably some level of minimum wages at which employment would start decreasing as a result, but it is fairly clear that the federal minimum wage isn’t anywhere near it. Thirty years ago, the economic consensus on this issue was fairly close to the Econ 101 view, but the evidence has displaced the theory in the view of much of the discipline.
Political Realities
Increasing the minimum wage might be the most popular meaningful policy change on the table for Congressional Democrats right now. A referendum for it won with 60.8% of the vote in Florida on the same ballot that Biden only got 47.9%, we can probably take from that that minimum wage increases as an issue manage to run ahead of Democrats by more than 10 points, that’s a really big deal. Pew found similar numbers in 2019, with 67% of respondents saying they favor raising the minimum wage to $15/hour. This is a politically winning issue for Democrats.
Part of what I’ve tried to get across on this blog is some sort of belief that Democrats should do popular things and not do unpopular things. This sometimes comes at an odds with my personal views on things. I think America should have more gun control, let in far more immigrants, and institute a carbon pricing scheme, none of these things are particularly popular, at least in the skewed rural-biased system the United States Senate creates. The minimum wage is something that is an extremely popular thing, and it would be well worth it for Democrats on just a cynical political level for them to do it.
The Theory of the Second Best
Politics is hard, especially in a country where you need extremely broad consensus to do left-of-center things like America. The federal minimum wage isn’t a very precise tool, and I think you could argue $15/hour, even some years from now, is genuinely a bit too much in some lower income jurisdictions. In an ideal world, I think maybe you could try to address the issues that make minimum wage increases less impactful on employment than the 101 view would suggest head-on. Deal with local monopsony, make job search systems more efficient, mandate that some of those non-wage offsets be in place for employers of a given size. All of these things are hard though, especially the monopsony one, which is usually suspect number one when economists think about why the minimum wage employment effect is so hard to find, but local monopsonies are very often locally owned small businesses, and locally owned small businesses are extremely politically popular. Increasing the federal minimum wage to $15/hour is a bit of a sledgehammer when a bunch of screwdrivers would do the job more precisely, but there is this idea occasionally thrown around in economics called The Theory of the Second Best, that if there is some market failure, and the best solution to that market failure is politically or for some other reason infeasible, then it might make sense to use some imprecise tools to do the best job under the constraints. Doubling the American federal minimum wage to do the best job at helping low income workers that we can might just be one of these.
Raise the Minimum Wage
I’m a latecomer to this particular perspective, I’ve always thought the US minimum wage should be raised, but not by as much as Fight for Fifteen advocates had wanted. To be fair, at some level the facts genuinely have changed, there has been some inflation since the movement started, the idea has become more politically popular, and some additional economic work has solidified the idea that the employment effect of the minimum wage is either small or non-existent. But a lot of it is that my personal priorities have changed. I’ve always been a believer in a bit of an “art of the possible” view of politics, but I used to use that a bit more to flatter more straight-forwardly moderate proposals rather than what is actually politically popular on the ground. I’ve tried to get better at that, focus on the 60%+ issues for American liberals in an electoral system rigged against them, and the minimum wage is near the top of that pile. I’ve looked more into the research that has really convinced me that even without the political calculation, a significantly higher federal minimum wage is better than the status quo in the United States. If Congressional Democrats want to help the working poor in a politically feasible way, they should Fight for Fifteen.










