Should We Maximize The Minimum Wage?

Nick Hanauer wants to raise it to $15:

True, that sounds like a lot. When President Barack Obama called in February for an increase to $9 an hour from $7.25, he was accused of being a dangerous redistributionist. Yet consider this: If the minimum wage had simply tracked U.S. productivity gains since 1968, it would be $21.72 an hour — three times what it is now.

Felix is on board:

There are surely some US jobs which simply aren’t economic at $15 per hour, and those jobs will end up being lost. (In aggregate, as I say, raising the minimum wage is probably good for employment, but the extra jobs at employers taking advantage of all that extra spending aren’t going to be in the same places as the jobs lost at employers who can’t afford to pay that much.) But the point here is that the US has already done a spectacularly good job of exporting most of its exportable low-wage work. As Hanauer says, “virtually all of these low-wage jobs are service jobs that can neither be outsourced nor automated”. As a result, raising the minimum wage will result in many fewer job losses now than it would have done a couple of decades ago.

Dylan Matthews, who isn’t necessarily opposed to small increases in the minimum wage, thinks that a $15 minimum wage is a “terrible idea”:

The evidence we have on the effects of minimum wage increases, [economics professor Arindrajit Dube] notes, are “limited to a historical period where statutory minimum wages have ranged between roughly 35% and 50% of the national median wage.” Hanauer’s proposal would put the minimum wage at roughly 75 percent of the national median, which Dube notes would put it higher than any OECD country, including several European social democracies. “We just do not know what a $15/hour minimum wage would do based on the type of careful research designs that have become the hallmark of modern labor economics, and ones I strive to use in my work,” Dube writes in an e-mail.

Matthews’ bottom line:

There’s a case to be made that mild increases in the minimum wage are worth it, either because one doesn’t believe in employment effects or because one believes the wage increases it causes are worth it. But Hanauer’s proposed increase is recklessly large and even supporters of minimum wage hikes don’t think it’s a serious option.