Last week, the Washington Post reported President Biden has selected former campaign advisor Gene Sperling to oversee the administration of the recently-passed stimulus package. Notably absent from the plan is a $15 federal minimum wage, since it was ruled not incidental to the budget, and failed to gain 60 votes to remain in the package.
Biden and other Democrat leaders have vowed to enact $15 in a standalone bill. But Sperling, who also served as director of the National Economic Council under Presidents Clinton and Obama, advised against “aggressive” wage hikes.
During the Clinton administration, Sperling warned that a 1998 proposal to raise the wage to $7.25 by 2002, a 40% increase, was “too aggressive.” In a memo on behalf of the President’s “entire economic team”, Sperling wrote the proposal would “prove damaging to the employment prospects of low-skilled workers, as well as to the general macroeconomic performance of the economy.”
Democrat leaders at the time instead all signaled support for one-time, less-dramatic increases proposed by Sperling. The economists, including current Treasury Secretary Janet Yellen, all advised a lower, gradual increase that would instead raise the wage by less than 20% over four years. Clinton stuck to this advice, later backing an increase only to $6.15.
Even in the economic boom of the late 1990s – where unemployment was at [[4.6%]] and trending down – the presidents’ economists were concerned about the consequences of raising the minimum wage on employment and growth. And they were correct. When a raise to $7.25 was finally enacted in 2007, a study analyzing the impacts of the increase found that the policy cost more than one million jobs.
This advice also follows historical precedent. The two increases prior to 2007 represented a 27% hike in 1990-1991 and a 21% hike in 1996-1997.
Today, lawmakers are debating whether or not to install a $15 minimum wage for the entire country, which represents a 107% increase from the current rate. The proposal also would eliminate the tip credit, triggering a more-than 600% increase in the cash wage paid to tipped employees. Factoring in the last wage hike in 2009, the average of the last three minimum wage changes suggests that a future increase should not exceed 30% growth in the minimum wage level.
The context is also much more dire: the current economic conditions are not as strong as they were in 1998. The nation is still struggling to recover from historic unemployment (currently 6.2% in February 2021, and showing signs of stagnation), and pandemic recovery is slow for many businesses still facing lockdown restrictions with no end yet in sight.
Yet again, economists warn President Biden and Congressional leadership that enacting a $15 minimum wage will cause significant harm. The nonpartisan Congressional Budget Office assessed the $15 wage proposal in the American Rescue Plan would cost up to 2.7 million lost jobs – totaling more than the number of people it would pull above the poverty line.
While Sperling has been tapped to specifically oversee the stimulus plan, Biden should heed the advice to his predecessors that a hike to $15 nationally will do the opposite of stimulating a struggling economy.