Tuesday, July 09, 2019

$15 Minimum Wage Would Bring Mixed Fortunes for U.S. Workers

By Eric Morath of The WSJ. The current federal minimum wage is $7.25. If it went to $15 right now, that would be a 106.7% increase. The CPI is 18.9% higher now than it was in July 2009, when the federal minimum wage went to $7.25. Excerpts:
"Increasing the national minimum wage to $15 an hour would deliver a raise for millions of U.S. workers but could also cost 1.3 million Americans their jobs, according to a government forecast"

If the federal minimum wage were raised to $15 an hour in 2025, as House Democrats have proposed, a significant number of Americans would likely lose their jobs, a study released Monday by the nonpartisan Congressional Budget Office found.

But the study also estimates that in an average week in 2025—the year after the House measure would take full effect—a $15-an-hour minimum wage would boost the pay of 17 million workers who would otherwise earn less than $15 per hour. It could also raise the pay of 10 million workers who otherwise would earn slightly more than $15 an hour. Raising the federal minimum to $15 would lift 1.3 million Americans out of poverty, the CBO said."

The study’s estimate of 1.3 million jobs lost is the median figure in a range from zero to 3.7 million eliminated jobs. That broad range reflects uncertainty about how wages could otherwise change over the next five years absent any policy shifts, and how employers might respond to the proposed federal increase.

“Many studies have found little or no effect of minimum wages on employment, but many others have found substantial reductions in employment,” the study said."

"Twenty-nine states and many cities have moved to raise their pay floors above the federal level. New York and California are among six states, along with the District of Columbia, that have passed legislation to set a $15 minimum wage in the coming years."

ALAN B. KRUEGER, who was once chair of the Council of Economic Advisors (CEA) under Obama, and was usually a supporter of the minimum wage, worried about $15 (at least back in 2015). See The Minimum Wage: How Much Is Too Much? Excerpts:
"Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences."

"But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States."

"Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.
Economics is all about understanding trade-offs and risks. The trade-off is likely to become more severe, and the risk greater, if the minimum wage is set beyond the range studied in past research."
Alan Blinder is another economist who has advised Democrats. He served on President Bill Clinton's CEA. He is also skeptical of $15. See A Fairness Agenda for Winning Over Angry Voters. Excerpt (also from 2015):
"Raising the federal minimum wage would be an enormous help for wage earners at the bottom. (Many states and cities have done so already.) I’d favor going in stages to something like $10-$12 an hour, not to the $15 that is gaining traction on the left. Moving too high too quickly raises the specter of job losses."
Christina Romer, the first chair of the CEA under Obama, also expressed some skepticism about minimum wage laws. See The Business of the Minimum Wage. Excerpts (from 2013):
"One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment. [when there is only one employer for certain occupations it is called a monopsony]
But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers."
"Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.
Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help."
"the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous."
"The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish."
"But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time."
Related post

Has the Minimum Wage Kept Pace with Inflation?

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