Judging by comments from progressive groups and the White House, the “fight for $15” isn’t over, even though the $15-minimum wage provision originally included in the recent $1.9 trillion coronavirus relief bill was stripped out before passage due to the arcana of the budget process. But take it from those of us who live in Northern Europe’s social democracies: It’s not a good idea.
The first thing that should be noted is that, despite higher taxes, more regulated economies, and more generous welfare states, no European country has a $15 federal minimum wage. The highest national minimum wage is found in Luxembourg, but even their minimum wage falls short of what progressive Americans call a “living wage.” Another difference from the U.S. is that in Europe, minimum-wage workers actually pay income tax because base deductions are negligible in most countries.
In the Scandinavian economies, the minimum wage differs by industry and is set by negotiation between the unions and the employers. The lowest minimum wage for any profession in Sweden is about $13.50/hour, and someone making that rate would have to pay an effective income tax rate of just over 19 percent. So even by social-democratic European standards, what the American left is calling for is radical.
Still, minimum wages are substantially higher east of the Atlantic, and our economies are clearly functioning. So, how bad could it possibly be?
The short answer is: It’s not terrible, but it’s not better than the U.S. Yes, an economy can function with high minimum wages. But it can’t function the way the American does.
For example, there are no greeters in Europe when you enter a store, and when you leave, there are no baggers helping you put your stuff into a shopping bag. You may scoff that you don’t like those greeters anyway, and that you’re fully capable of stacking your groceries into your own bag. That may be, but that’s not the point: The reason neither of these positions exist in Europe is because labor costs make them unaffordable. A $15 minimum wage would make this the case in the U.S. as well. Maybe you wouldn’t miss the greeters and baggers, but they would probably miss their jobs. And without low-skilled work like that, many young people and people on the fringes of society will struggle to find their first job and gain experience and references they can put on their resume and leverage into a better-paying job down the line.
The contrast is even starker, however, when comparing those born in foreign countries. Among immigrants, the unemployment rate in the U.S. was 3.1 percent in 2019. In Sweden, it was 15.3 percent—almost five times higher. One explanation may be that Sweden has had a high level of immigration for many years which has made it difficult for us to assimilate immigrants and help them enter the job market.
But the Biden administration has also indicated that it will pursue a more liberal immigration policy than its predecessor (it would be hard to be any less liberal). This is good economic policy—the American economy does after all to a great extent depend on immigrants. Some of the proposed reforms, such as preventing family separation, are good and necessary just as a matter of human decency. But, perhaps most importantly in the context of the minimum wage debate, the administration has also stated its intention to drastically increase the U.S. refugee quota, which will also increase immigration from the developing world.
Normally, immigrants from these countries take on low-paid work as a way to gain a foothold in their new country. While at work, they learn (or improve their knowledge of) English through their coworkers. This way, they soon become members of their communities and even more productive for the economy writ large.
High levels of immigration of low-educated workers and high starting salaries simply do not mix. A higher minimum wage means businesses can’t afford to hire as many low-skilled immigrants. While the exact number of jobs that would be lost can be debated, there is no doubt that these job losses will disproportionately affect immigrants and ethnic minorities.
If America were to follow Europe’s example, the unemployment rate among immigrants could increase by several times its current level. The continued intake of immigrants could exacerbate already inflamed racial tensions. It’s difficult to imagine better circumstances for Trumpism to be resurrected, especially considering the clear relationship between youth unemployment and crime.
European countries have attempted to tackle this problem by providing education for immigrants, so that they can raise their productivity enough that an employer could afford to pay them our higher minimum wages. Sweden has had such programs for several decades, but still suffers from an unemployment rate among immigrants five times as high as that in the U.S. Even when these programs are effective, they’re still controversial: They effectively redistribute resources from citizens to non-citizens, and they’re expensive because while immigrants are getting educated, they have to rely on the public welfare systems to provide them with accommodation and to cover their living costs.
Naturally, clever “solutions” are floated in Sweden every now and again. One is a minimum wage exception, allowing immigrants to work for a lower minimum wage, while setting a higher minimum wage for everyone else. This would further strengthen the view of immigrants as people who “steal our jobs” by “working for nothing,” and who, since they can underbid the competition, contribute to lowering wages. It’s not ideal for a country that already has a white nationalism problem.
Instead, Sweden has implemented wage subsidies, but they’re expensive and thus invite the same objections as providing education to immigrants.
None of this is to say that the minimum wage should be forever unchanged. It’s important, however, that Congress and the administration decide what they wants to prioritize. If they do choose to prioritize the $15 minimum wage, they must be open about the consequences this will have for Americans—immigrants and otherwise.