In his speech yesterday, Obama once again proposed increasing the minimum wage. Douglas Holtz-Eakin opposes the idea:
According to recent American Action Forum research, 80 percent of minimum wage workers are not actually in poverty, increasing the federal minimum to $10, as some have proposed, wouldn’t benefit 99 percent of the people in poverty. Myriad research indicates that raising the minimum wage, while not destroying jobs, impedes job creation. That means an even slower recovery to full employment. California’s new bump in the minimum wage to $10 will prevent the creation of almost 200,000 new jobs. If every state followed suit, more than 2.3 million jobs across the country would never see the light of day.
Ron Unz, who is trying to get a $12 minimum wage implemented in California, disagrees:
The impact on U.S. households would be enormous and bipartisan. Some 42 percent of American wage-workers would benefit from a $12 minimum wage and their average annual gain would be $5,000 per worker, $10,000 per couple, which is very serious money for a working-poor family. White Southerners are the base of today’s Republican Party, and 40 percent of them would gain, seeing their annual incomes rise by an average $4,500 per worker. If Rush Limbaugh — who earns over $70 million per year — denounced the proposal, they’d stop listening to him. Hispanics would gain the most, with 55 percent of their wage-workers getting a big raise and the benefits probably touching the vast majority of Latino families.
In the past, Unz has written that a higher minimum wage will reduce illegal immigration because “a much higher minimum wage serves to remove the lowest rungs in the employment ladder, thus preventing newly arrived immigrants from gaining their initial foothold in the economy.” Bruce Bartlett is made queasy by this rationale:
[I]t is not surprising that the Unz proposal has gotten strong support from those who strongly oppose immigration for racial reasons. The website VDARE.com (named for Virginia Dare, the first white child born in the New World) strongly supports it. A Feb. 20, 2013, commentary said a higher minimum wage would keep out “wetback labor.”
There are good arguments for raising the minimum wage. For example, an August study from the Federal Reserve Bank of Chicago said an increase in the federal minimum wage would raise aggregate spending in the economy and, hence, the real gross domestic product. A higher minimum wage may also discourage some employment of illegal immigrants. But making an inadvertent side effect of the minimum wage its principal purpose may do more to divide potential allies than bring them together.
Steve Coll comments on the grassroots left’s campaigns for higher minimum wages:
The movement has momentum because most Americans believe that the federal minimum wage—seven dollars and twenty-five cents an hour, the same as it was in 2009—is too low. A family of four dependent on a single earner at that level—making fifteen thousand dollars a year—is living far below the federal poverty line. In January, President Obama called for raising the federal minimum to nine dollars an hour, and, more recently, he endorsed a target of ten dollars. Yet Congress has failed to act: a bill is finally heading for the Senate this month, but intractable Republican opposition in the House has made passage of any legislation in the short term highly unlikely. The gridlock has prompted local wage campaigns such as the one in SeaTac.
Arindrajit Dube discusses the broad appeal of such initiatives:
Support for increasing the minimum wage stretches across the political spectrum. As Larry M. Bartels, a political scientist at Vanderbilt, shows in his book “Unequal Democracy,” support in surveys for increasing the minimum wage averaged between 60 and 70 percent between 1965 and 1975. As the minimum wage eroded relative to other wages and the cost of living, and inequality soared, Mr. Bartels found that the level of support rose to about 80 percent. He also demonstrates that reminding the respondents about possible negative consequences like job losses or price increases does not substantially diminish their support.
Avent is unsure how companies would respond to a higher minimum wage:
The finding that an increase in the minimum wage boosts pay up the wage scale, and not just for those earning the minimum wage, is fascinating but also somewhat worrying. It suggests that the minimum wage does not primarily boost pay by reallocating the surplus generated by a hire. Instead, employees seem to respond by working harder while employers invest in training and other workplace productivity boosters. That’s a lovely thing to have happen, but also reason for caution. Technological progress seems to be boosting opportunities for automation all the time, and at some point firms will cross the threshold beyond which it makes sense to replace labour with capital rather than invest in more productive labour. Amazon’s fulfillment centres generate tens of thousands of jobs, many at or near minimum wage. Maybe a higher minimum wage will lead to better pay without much of an employment effect. Or maybe Amazon will accelerate the deployment of warehouse robots. Maybe a higher minimum wage will boost pay at fast-food restaurants. Or maybe it will lead the restaurants to get serious about automation.
I think ideally we would see a push instead for greater wage subsidies to low-income workers, perhaps combined with the careful minimum wage system used in Britain to ensure that firms don’t simply shift the burden of giving market pay rises onto the state.
Pethokoukis suggests an alternative to a minimum wage hike:
[A] 2010 study “Will a $9.50 Federal Minimum Wage Really Help the Working Poor?” by researchers Joseph Sabia and Richard Burkhauser found that a federal minimum wage increase from $7.25 to $9.50 per hour — higher than the $9 that President Obama has proposed — would raise incomes of only 11% of workers who live in poor households. Even Coy and Berfield acknowledge some of the policy’s imperfections, writing that “a higher wage floor would undoubtedly price some marginal workers out of the market.”
These studies aren’t some secret. So why do so many smart people keep advocating for a higher minimum wage? The best answer I can come up with is that they think it is more politically likely than the better economic answer: wage subsidies.
Drum doubts the GOP would go for it:
Wage subsidies would supposedly distort the labor market less than a higher minimum wage, but that’s because it would remove the onus of higher wages from employers and place it on the federal government. That means higher taxes to pay for the subsidy, and that’s just flatly a no-go for the modern Republican Party. This in turn means it could be implemented only as a tax credit, and that inherently places some restrictions on its reach and effectiveness. So Democrats would be in the position of backing either a good policy that will never get Republican support because it requires a tax increase, or else a mediocre policy that would still probably be a very heavy lift.
The Dish 