The Promise, Challenge, and Urgency of a $15 Minimum Wage: More Pressure on Young Workers to Upgrade Their Skills

$15 an Hour: Macro-Economic Impacts

A $15 minimum wage is not a simple topic.  It’s no accident this is not a short read.  We are going to cover this as a four-part series to get into the depth of things. It’s the only way to adequately protect the various impacts of a policy change of this significance. 

First and foremost, we acknowledge the resoundingly good intentions and promise of what higher minimum wages mean when it comes to more liveable wages across the country, particularly for our constituents.  For our nation’s most vulnerable citizens, an increased wage should do all of the following:

• reduce pressure on social and municipal services that have heretofore been a buoy for the underprivileged, 
• bring dignity to those that have been denied this essential element of self-confidence
• reduce inequality for those who have felt “less than”, and
• provide a lifeline that is longer than the one previously offered between paycheck cycles 

We just want to be practical about what needs to happen to ensure our constituents have acquired a sustainable “liveable skill set” that is aligned with the proposed minimum wage increase.  This balanced approach is the only responsible way the government can assure unintended consequential behavior by the business community is abated, and that this grand policy move can have the widespread effect intended.

In this series, we’re going to look at sea levels, as a metaphor for labor market dynamics.   We’ll represent the cost of labor to employers as the sea levels in our oceans and those levees designed to protect communities from flooding, will represent the skill set of the labor force.  It's a well-documented fact that our oceans are rising due to climate change; in 2012, NOAA scientists conducted a review and concluded that global mean sea level would rise at least 8 inches (0.2 meters) above 1992 levels by 2100.  While the catalyst for rising sea levels is debatable by some as to whether this change is man made or due to nature, the resulting increase in sea levels is illustrative of the proposed increase of the minimum wage to $15/hr.  

That’s anywhere between 50-100% more than currently paid in your state, depending on how much higher your state already is above the federal minimum.  Now, in the case of rising sea levels, guess what happens if the sea levels rise as expected and we don’t simultaneously raise the height of our levees to maintain the equilibrium of this system?  The levees will be insufficient and those in the labor force that remain at the associated skill level prior to the increase will be overtaken by the ensuing flood; clearly the unintended consequence of altering only one side of the labor market equation.

$15 An Hour: A Rude Awakening

We use the imagery to illustrate an important point. There will, inevitably, be a rude awakening for those who do not constantly develop and upgrade their skills. It may feel like a light trickle at first, then it will feel stronger, and predictably the water will come crashing upon us in a way that will make it feel hard to breathe.  This will happen quickly and affect those that are least financially secure and those who are the least capable of undergoing any kind of economic shock--those currently earning minimum wage.  The reality might hit hardest not only for those that aren’t just underskilled, but those who are completely new to labor market dynamics...specifically, the K-12 students who may not be going on to college, and have to enter a job market where the cost of entry just jumped significantly.  David Cooper, deputy director of the Economic Analysis and Research Network (EARN), indicates that nearly 40 million workers would be impacted by the proposed increase in the minimum wage, including 53.3% of youth ages 16-24.

As we noted up front, the result of a shift is significant, and frankly a welcomed pressure on community stakeholders, businesses, and students—to recognize that, with the upside of economic stability also comes a long-term risk for specific populations.  It is incumbent on all of us to come together and mitigate that risk. And as much as we love when the government’s instinct is to do the right thing for the citizenry (again, this IS the right thing), we must also be certain they address any unintended consequences in an innovative, cost-effective, and efficient manner. The good news is that there are already government funds available to subsidize and support the programming needed to raise the skill level and minimize these risks.

$15 an Hour: Roadmap to Success

We hope you’re already getting a sense that we at KP have a roadmap for how to get there.  To understand our analysis one must understand and accept the following:

• Employers will seek productivity improvements via technology and an increased expectation of its employees’ skills to ‘middle skills’, not just the ability to know how to read the clock and show up to work on time. 
• Talent supply chains are an incredibly important philosophy, endorsed by the US Chamber of Commerce Foundation through its Talent Pipeline Management (TPM) initiative, which must be adopted not only by a community’s business leaders, but by the K-12 system as the largest supplier of talent.
• K-12 schools’ edict encompasses career readiness to facilitate direct entry into the workforce for those not seeking a college degree upon graduation.
• Schools are large government employers, often the largest government employer in the local community

As we note, it’ll take us this and a few upcoming pieces to tackle each of these in detail.  But if one doesn’t agree with any of the above basic tenets, we’d welcome comments, as our solution is premised on close collaboration amongst community stakeholders.  This is not a red-, blue-, or purple-state issue.  It would only be for lack of willingness in leadership that a community could not implement the gameplan we believe exists in every corner of America, supported by bipartisan federal dollars currently available to support the plan.

With that said, here we’ll highlight potential ramifications of nearly doubling a nation’s minimum wage.  We’ll also look specifically at how one of the most vulnerable populations in this scenario (the unskilled or under-skilled) must be given -- NOW -- the tools to compete in a labor market with higher expectations.

$15 an Hour: The Ramifications

There are at least two ramifications (and for those affected, fears) to consider with the implementation of a higher minimum wage, especially one as drastic an increase as this one.  The first is that -- perversely -- those with the lowest skill set (in entry-level jobs, earning at or near the minimum wage) may see their jobs most affected.  The second effect is the reality check that younger workers make up almost half of those earning the minimum wage, thus making them some of the most vulnerable to a potentially severe reduction in these entry-level jobs.

1. Aside from an increasing body of research demonstrating that higher minimum wages indirectly destroy entry-level jobs themselves, it’s a simple economic analysis business owners will do.  In most industries affected by global commerce (or competition from global ownership of local commerce), the profit margins are slim and there is an imperative to keep costs down.  Everyone is happy with the lower prices a retailer offers them...they don’t usually worry about what it takes to get those prices low.  Adding up to between a 30% to 50% increase in labor costs will not be an easy pill to swallow, particularly at a time when Covid19 has exhausted many employers’ financial cushions. As Ben Wilterdink states, “increased minimum wages represent the largest threat to the continued availability of entry-level work. This threat is both direct and indirect in nature...those most sensitive to the direct negative employment effects of minimum wage increases are those already earning the minimum wage”.
2. There is a legitimate fear that younger, less experienced employees will not be the first to be hired in a state with a $15.00 an hour wage law. Considering the reality that workers under the age of 26 make up about half of those paid the federal minimum wage or less, this puts a focus of impact disproportionately on those at the end of their K-12 journey (and eligible to work).  It also targets those that weren’t able to go -- or realized for them it was not worth going -- the 4-year college route.  Perversely, this is often a path taken by those that also had access to basic employment opportunities, such as summer internships, work-study programs, jobs their mom and dad got them with friends’ companies...exactly the kind of opportunities which would have prepared them to enter the job market at ABOVE a basic entry level position.  

By way of example, just think about the jobs we’d previously assumed as an easy, basic entry point for inexperienced workers -- often those without access to friend-of-family network opportunities.  These basic jobs are the cashier, grocery bagger, order taker roles that were always assumed to be readily available.  Now consider how many times you’ve walked into a grocery store, and instead of what used to be two lanes of checkout, you see a modern, double-sided bank of machines, which can process 6-8 shoppers simultaneously.  The shoppers that take this option are happy to scan their own groceries (because they were annoyed at how slowly the cashier used to do it), they are happy to put the items into the bags the way THEY like it (instead of having to tell the bagger that they DON’T want eggs on the bottom), and the business owner is happy that there is more throughput in the lines, as well as less likelihood the store’s machines will call in sick and leave scheduling to a scramble.  The impact of this transition is that 2 shifts of 2 cashiers each, and a corresponding bagger spot (rotating between the lanes) is now gone.  And this was with a minimum wage that was 50% less than the one proposed.  How much more enticing does it now become for the business owner to make that investment into machinery, no matter how loyal s/he was to supporting local employment. You can see further examples of this automation in the McDonald’s order kiosks, where you tap-tap-swipe, and then walk up to what’s now one person at the counter, simply handing you the order.  And when we note an example like Amazon raising their minimum wage, there are many factors at play.  But one of the main ones is the fact that Amazon is a leader in automating away what might have otherwise been low-wage jobs. Think of the stocker and picker that would have been at the lower end of the ladder many years ago.  That job effectively doesn’t exist at the commerce behemoth.  The stocking and picking is done more and more by machines.  The bottom line is this automation away from low-paying jobs was already underway.  With the current reality of people being deathly afraid (literally) of others’ touching their things, crowding their space, etc., automation of the lowest level jobs will accelerate.

$15 an Hour: The Requirements and the Training Grounds

All told, there is certainly a positive side to a higher-waged economic environment.  While many of the jobs generally reserved for new entrants into the workforce are disappearing with the increased automation, new opportunities are emerging.  This transformation requires employees with the skills to effectively manage the new technology.   To take advantage of these new opportunities, younger workers will need to enhance their skills in at least three areas that employers consistently say are lacking: a) technical and problem-solving skills, b) soft skills (social and customer interaction), and c) workforce attitudes (being punctual, dressed appropriately) and c) technical and problem-solving skills. 

Moreover, with an increase potentially only a few years away, the time to improve on these skills is now (if not yesterday).  The good news is there is at least one workforce development agency, which as we’ve repeatedly noted is both underutilized and has a captive audience in the younger population which serves as its client base...the K-12 school system.

$15 an hour: The School’s Role

The K-12 system is the absolute front-line of defense against the above-described shortfall.  If it hasn’t been recognized that this is the case, shame on us societally for not pushing that discussion.  It’s time to wake up, recognize that our sea levels are rising, and step up to the plate to change things (we mean now, before the floods overwhelm us making it hard to take a breath of air).

Teachers’ have arguably been pushed and tested more in the last 9 months than any of us over a longer period of time.  The work they have had to put out is incredible, effectively uprooting many of the canons in pedagogical methods and shifting on the fly (we’re talking literally on a day’s notice having to move from one method of interaction to another).  We have incredible respect for what they’ve managed to hold together.  But the challenge the entire K-12 system faces is it’s shackled in a belief structure that has not allowed enough educators and administrators to realize the changed nature and value of school.  Long ago, kids went to the fields to help their parents gain economic sustenance OR they went to school to gain academic knowledge (maybe even knowledge for the sake of knowledge).  Now everyone in civilized society recognizes kids must get a proper K-12 grounding, even if their onward pursuits aren’t some academically intense field of work. 

The trouble with that last statement is that not enough leaders in the K-12 system seem to have recognized value inherent in their models, including:

• Facilities for training (the school buildings themselves)
• Windows of time where they have a captive audience (career and technology education and after school)
• Eager customers for their primary product--a career ready labor force
• Government funding (outside K12 operating budget) for academic, personal and career development services 

Those required skills we noted earlier (soft skills, attitudes towards work, etc.)...if not already obvious, recent research confirms most of these skills are developed in young adulthood. Students themselves can jump-start things, using vacation or weekend time to learn the discipline necessary to develop these skills that will enable them to be more competitive in this new environment. In a 2014 report for the Employment Policies Institute titled “The Lasting Benefits of Early Work Experience”, economists Charles Baum and Christopher Ruhm find “clear evidence that part-time work by young adults—both during senior year of high school and during the summer months— translates to future career benefits that include higher hourly wages, increased annual earnings and less time spent out of work.”  But this option is not always available, and as we note, the lower level opportunities will likely be reduced dramatically.

The good news we noted is that the K-12 school system has a captive audience of children that stretches into young adulthood.  For many students, the system also offers an after school window (which we’ve bluntly argued elsewhere often amounts to little more than enhanced babysitting).  This after school window can be a critical development tool, if structured properly, with the right intention and stakeholders championing its use as the training ground we noted. 

$15 an hour: Developing Skills for Higher Wage

The question is how do students with fewer options to work -- thanks both to Covid19 and the attendant recession -- develop those critical skills.  We need to develop after school programs where students can get a taste for the work environment. At KP we provide an after school experience that puts students to work, giving them a real work environment, virtual currency for the time they spend on the job, and promotions for tasks that were completed on time and above expectations.  These are just a few of the elements we employ.  Additionally, we place students in summer jobs where they can be supported by available state resources to gain valuable work experience.   More in future pieces about this and other ways KP is helping address the problem at hand.

Conclusion #1 (of the 4 we’ll draw in this series)...

Times are changing very fast. As automation disrupts large sectors of the job market, and “routine” jobs become fewer and far between, a new kind of worker is needed. The bagger at the supermarket will eventually disappear as will the thousands of other jobs that required no real human interaction or problem-solving skills. These jobs will be replaced by those with the technical proficiency to service the machines that replaced them or who can add value to the customer experience by having expert knowledge of a particular product or service and can communicate that expertise fluently. In other words, jobs have not gone away but they are morphing at warp speed and our educational system has yet to catch up. While our understanding of the effects of increasing the minimum wage on the availability of entry-level jobs has greatly improved we have yet to signal the news to our educational system. Now is the time to do so.  A holistic Talent Supply Chain approach will not work unless we do.