It Will Reduce Poverty and Have Little Effect on Unemployment



Arindrajit Dube, a professor at the University of Massachusetts Amherst, co-authored the paper cited by the White House. He and his collaborators have used sophisticated data comparing the border regions of states with different minimum wages to advance the argument that, no, the laws don't hurt employment.

A $9/hr minimum wage is very much in line with historical experience here in the United States, as well as wages (when compared against say the median wage) in other developed countries. I think careful research on the topic has found that for this range of minimum wage increase, the almost unmistakable conclusion is that there will be little in the way of job losses, while the wages of low-end workers will get a boost . At the same time, turnover rates will most certainly fall in low wage sectors such as restaurants. And most importantly, research even by critics of minimum wages actually suggest that minimum wages reduce poverty and raise family incomes at the bottom end . Overall, a raise of this magnitude is simply (almost) keeping up with costs of living faced by low-income workers. In fact, David Neumark's own recent work from 2011 (with Bill Wascher) suggests that on average, for 21-44 year olds (the broadest group they studied), a 10% increase in minimum wages reduces poverty by around 3%. They do not report these average effects, but are available for anyone to calculate (and were confirmed in my personal communication with him).

Indexing It Is Smart

Daniel Hamermesh, of the University of Texas at Austin, is one of the country's better known labor economists (and a favorite here at The Atlantic), who probably qualifies as a moderate on the issue. His book Labor Demand devotes a 10-page-section to minimum wage laws specifically.

Raising the minimum wage will kill off a few jobs and is a slightly harmful idea. Not a disaster, because it affects relatively few people; and a smaller number will benefit. But it is a job-killing bill. There are better things to do. On the other hand, the proposal to tie the minimum wage to the cost-of-living is nearly excellent (except we should tie it to average wages, not to the cost-of-living). Doing this would end the repeated fighting over the minimum wage that distracts attention from other labor issues that are so very much more important. It would be a great saving of political energy not to have to debate the minimum wage year after year . I'd even be willing to see it increased to $9 next year if in addition it were indexed as I propose.

It's a Perfect Pairing With Immigration Reform

In 1994, David Card, a Professor at University of California, Berkeley, and Alan Krueger, now the President's top economic adviser, produced one of the most influential papers of the 1990s arguing that minimum wage laws weren't really job killers. The duo looked at what happened to employment at fast food restaurants on the Pennsylvania-New Jersey border after the latter upped its minimum wage. Ultimately, they found no affects. The study led to an extended academic showdown with Neumark and Wascher.

It seems to me that the proposal meshes well with initiatives on immigration. The inflow of low skilled undocumented workers has been slowed a lot, and there is an attempt to move more and more hiring to "above the table". In that context a higher minimum wage makes some sense: we can decide that we don't want to allow so many low skilled workers to immigrate -- and so many very low productivity jobs to be created -- and maintain that with a higher minimum wage. In addition, my reading of the evidence since the early 1990s is that apart from one or two "outliers", none of the serious literature has found big disemployment effects of minimum wages. Of course if the minimum was raised really high -- and enforced -- it would likely be a problem. But at reasonable levels the minimum has negligible effects on overall employment, and can make an important contribution to raising earnings and helping out workers on the lowest rung of the ladder , who have really suffered in the US over the past decades.

But Don't Expect It to Ease Inequality

So how is that you can raise the minimum wage and not reduce jobs? Barry Hirsch of Georgia State University has offered one potential answer. When the federal minimum wage went up in 2007, he and his co-authors found that business owners in Georgia and Alabama just made their employees work harder to justify the expense. (They also upped prices and saw profits fall a bit).