There’s a simple solution for the labor shortage: raising the minimum wage, a former Obama economist says

McDonald's fight for $15 wage
An employee of McDonald’s protests outside a branch restaurant for a raise in their minimum wage to $15 an hour, in Fort Lauderdale on May 19, 2021.

  • The economy is reopening but millions are still jobless as openings sit at record highs.
  • In response to this ‘labor shortage,’ 25 GOP-led states are ending federal unemployment benefits early.
  • Ex-Obama administration economist Heidi Shierholz says the minimum wage should go up instead.
  • See more stories on Insider’s business page.

Everywhere you look in the economy, there seems to be a shortage. The important things missing from shelves can be explained by factors like backed-up supply chains and a shipping crisis.

But another shortage that’s emerged – with increasing prominence as America’s recovery continues its long and winding path – is labor. Millions of workers are still out of work, even though businesses are reopening and want to hire.

One solution has to do with wages, and simply whether they’re enough to get people to do certain jobs after a pandemic. May’s jobs report showed wages on the rise for leisure and hospitality workers, but also showed workers quitting at the fastest rate documented in 20 years. While they saw significant pay jumps – by 7.2% from January to May – that only brought average hourly earnings up to $15.68.

“The wage growth that we’ve seen, say in leisure and hospitality, over the recent months, it’s so little more than just getting those wages in that industry back to where they would have been if COVID hadn’t happened,” Heidi Shierholz, the director of policy at the left-leaning Economic Policy Institute, told Insider. She said talk that such workers are getting more leverage may be “overstated,” and it probably won’t be sustained or permanent.

GOP governors in 25 states have decided that it’s too much leverage anyway, and that federal unemployment benefits in place for much of the pandemic have run their course. They’ve moved to end them months before their September expiration in President Joe Biden’s stimulus. It’s a decision that JPMorgan said is “tied to politics, not economics,” noting that many of these states didn’t have more job openings than jobless people.

Shierholz, a veteran of the Obama administration as chief economist at the Department of Labor, said broad reform is necessary in the labor market, and raising the minimum wage is a key aspect. That could both bring workers back and let higher wages stick, even after enhanced unemployment benefits taper off in September.

“That’s smart, and it’s good economics,” Shierholz said. She also said that things like passing the PRO Act – legislation that could both strengthen unions and offer greater protections to nonunionized workers – would aid recovery.

Shierholz previously told Insider that prematurely ending unemployment benefits could stifle the recovery, especially since workers receiving those benefits are putting that money back into the economy. She said that if the concern is higher benefits keeping workers from work, ending benefits may not be the best route.

“You could quote unquote ‘deal with that’ by cutting off unemployment insurance benefits, which has all these terrible implications” – like stifling recovery and leave millions without income – “or you could do something like raise the minimum wage,” she said.

Boosting wages to $15 may be helping with hiring and retention

Anecdotal evidence suggests that the businesses that did raise wages to $15 an hour succeeded in luring in new workers and boosting morale while cutting turnover. The Washington Post’s Eli Rosenberg spoke with several business owners who had done just that. Progressives have long wanted to raise the federal minimum wage to exactly that $15-per-hour number.

At the 5th Street Group – which owns several restaurants in Charlotte and Charleston – raising starting wages to $15 an hour, and enacting new tipping measures for staffers who aren’t normally tipped, helped the group go from being 50% to 60% staffed to nearly fully staffed in a matter of three weeks, according to the Post.

However, the likelihood of a $15 minimum wage being enacted anytime soon is low. Progressives led by Sen. Bernie Sanders pushed for its inclusion in President Joe Biden’s American Rescue Plan, but the measure ultimately didn’t survive under reconciliation rules. Eight Democrats voted against it, signaling even party-line support was not quite there. Talks on what, exactly, a minimum wage hike should be have also stalled recently.

The federal minimum wage is still $7.25. Although the above map shows that many states have opted to increase the minimum beyond that level, several remain at the federal rate.

Rhode Island recently passed a bill to raise the minimum wage to $15 by 2025, becoming the ninth state to pass a $15 minimum wage.

“Take a look at nationally – right now, states that are taking away the unemployment benefit of $300,” Gov. Dan McKee said in a press conference after signing the minimum wage bill into law. “Those states are at $7.25 cents an hour. So Rhode Island is a leader on this.”

But while raising the minimum wage might be key to an equitable recovery, according to Shierholz, it doesn’t look like the proposition is going anywhere anytime soon – even if it could help solve the labor shortage that’s holding back a full economic recovery.

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Sen. Bernie Sanders says the US needs ‘progressive taxation’ on the wealthy to pay for Biden’s infrastructure proposal

Bernie Sanders
Sen. Bernie Sanders (I-Vermont) arrives at the House chamber ahead of President Joe Biden’s first address to a joint session of Congress on April 28, 2021.

  • Sen. Bernie Sanders called for “progressive taxation” to fund Biden’s spending proposals.
  • “Biden says the floor should be $400,000,” he noted. “Nobody under that should pay more in taxes.”
  • Sanders also brought up the need for health care reform and tackling student loan debt.
  • See more stories on Insider’s business page.

Independent Sen. Bernie Sanders of Vermont on Sunday said that the US needs to institute “progressive taxation” on inherited wealth to help fund President Joe Biden’s spending proposals, notably a $2 trillion infrastructure plan.

During an appearance on NBC’s “Meet the Press,” Sanders stressed that it was imperative that the country deals with pertinent and longstanding economic issues facing the country.

“We have massive income and wealth inequality,” he said. “Half our people live on paycheck to paycheck. We’ve got to raise the minimum wage to a living wage. You’ve got to do that.”

Progressive legislators sought to include a $15 minimum wage bill provision in the $1.9 trillion COVID-19 relief package while it was being debated in Congress earlier this year, but Senate parliamentarian Elizabeth MacDonough ruled that it could not be included in the final bill under budget reconciliation rules.

Sanders, who has long said that the nation’s infrastructure was in dire need of repair, stressed that Biden’s spending plans would be beneficial to the American public.

“We have infrastructure that is collapsing,” he said. “We’ve got to address the existential threat of climate change. When you make those investments, we create millions of good-paying jobs.”

Read more: Here’s how Biden is reshaping gender and reproductive rights with policies that are even more progressive than past Democratic presidents

Reminiscent of his 2016 and 2020 presidential campaigns, Sanders also brought up the need for health care reform and student loan debt, issues that progressives in Congress have not forgotten about.

“We are the only major country not to guarantee health care to all people as a right, the only major country not to have paid family and medical leave,” he said. “We pay the highest prices in the world for prescription drugs. Hundreds of thousands of kids can’t afford to go to college, and millions leave school deeply in debt. Well, you know what? You’ve got to address those issues.”

Sanders, who chairs the powerful Senate Banking Committee, then went after major corporations that he says haven’t paid any federal income taxes and again called for instituting a progressive estate tax rate starting at 45% on inherited wealth of more than $3.5 million.

Warren Buffett, one of the richest guys in the world, reminds us that the effective tax rate for working families is higher than it is for the billionaire class,” he said. “I do think we need progressive taxation, which says to the very rich – Biden says the cap should be, the floor should be $400,000. Nobody under that should pay more in taxes.”

He added: “The very rich and large corporations should start paying their fair share of taxes to help us rebuild America and create the jobs that we need.”

When Sanders was asked if he would back the spending proposals if they don’t come with the desired tax increases, the senator said that “the devil is in the details.”

“I think once we start discussing these issues in the Congress, there will be differences of opinion,” he said. “I think there is a consensus, at least within the Democratic caucus, that now is the time to start protecting working families and the middle class and not just the 1 percent.”

Read the original article on Business Insider