Helpful, Harmful, or Hype? 5 Economists Weigh In on Obama's Minimum-Wage Proposal

More

If a meteor ever smashes into the earth, leaving the planet a dark lifeless wreck, there will still be two economists walking down a desolate post-apocalyptic Connecticut Avenue arguing about whether minimum wage laws kill jobs. As David Neumark, J.M. Ian Salas, and William Wascher document in a recent paper, the debate has been with us since at least 1913, when the U.S. Department of Labor was created. And it's probably not going anywhere soon.

President Obama lays out his second-term vision for America. See full coverage

Of course, Obama's proposal to up the minimum wage to $9 and index it to the cost of living has the issue back in the news. And so, rather than rehash the entire history of the debate (for a somewhat detailed, if left-leaning, retelling, here's the EPI), I reached out to some of the country's leading labor economists for their takes. The key observations are underlined

This Will Kill Jobs for the Lowest-Skilled Americans

Along with his frequent co-author, Federal Reserve Board economist William Wascher, David Neumark of the University of California, Irvine, is widely thought of as the leading conservative voice on the effects of minimum wage laws. The pair produced one of the seminal modern studies on the topic in 1992, arguing that a 10 percent increase in the minimum wage could reduce young adult employment by up to 2 percent. They've also argued those job losses make the minimum wage an ineffective tool for fighting poverty and produced an enormous survey of the available research some consider a touchstone.  

The problem of low-wage work that President Obama's proposal is intended to address is real, ongoing, and serious. But simply mandating that employers pay a higher wage is not an effective solution, because a higher wage floor reduces employment among low-skilled workers.

A White House "fact sheet" claims that the proposed wage hike would not reduce employment, referring to studies that "built on earlier research and confirmed that higher wages do not reduce employment." But only a highly selective cherry-picking of favorable studies can lead to the interpretation of the evidence pushed by the White House staff. Moreover, the fact sheet relies most heavily on the only study it cites directly -- a 2010 paper in the Review of Economics and Statistics, which asserts that there are "no detectable employment losses from the kind of minimum wage increases we have seen in the United States." This is a provocative claim, if true. In a new study, however, Ian Salas (UC Irvine), William Wascher (Federal Reserve Board) and I subject this study to rigorous empirical testing. We conclude that its claims are unfounded, and that the evidence continues to point to disemployment effects of the minimum wage. This conclusion is consistent with a large body of economic research on the minimum wage that William Wascher and I have surveyed, most of which shows that minimum wages reduce employment for the least-skilled workers whom the President's proposal is intended to help.

An increase in the minimum wage to $9 by the end of 2015, then indexed to inflation, is a reasonable proposal, albeit one with costs as well as benefits. It will modestly slow the creation of low wage jobs and businesses built around low wage work in ways difficult to measure. Our economy and those in other countries have handled minimum wages at this (real) level reasonably well in the past. A higher minimum wage will bolster the incomes of low wage workers, strengthen their attachment to jobs, and increase the dignity of work. It will reduce poverty, but not by much, the link between household income and individual workers' wages being relatively weak. A higher minimum wage will reduce earnings inequality, but only moderately. Over the last decade, increases in inequality have been due mainly to large losses in traditional middle class jobs and growth of earnings at the top of the distribution. Employment and earnings toward the bottom of the distribution have held up reasonably well. Minimum wage increases do little to restore or stem losses of employment and earnings in traditional middle-class jobs, these losses resulting primarily from technological change, globalization, and, to a lesser extent, declining private sector unionization.

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 

Jump to comments
Presented by

Jordan Weissmann is a senior associate editor at The Atlantic.

Get Today's Top Stories in Your Inbox (preview)

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

Is Technology Making Us Better Storytellers?

The minds behind House of Cards and The Moth weigh in.

Video

A Short Film That Skewers Hollywood

A studio executive concocts an animated blockbuster. Who cares about the story?

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Video

What Is a Sandwich?

We're overthinking sandwiches, so you don't have to.

Video

Let's Talk About Not Smoking

Why does smoking maintain its allure? James Hamblin seeks the wisdom of a cool person.

Writers

Up
Down

More in Business

Just In