The Triumph of Politics Over Policy

In a New York Times column in defense of a $15 national minimum wage, Paul Krugman paints anyone who doesn’t see the unalloyed benefit of a $15 minimum wage as a radical while those who support it are moderates:

It’s true that once upon a time there was a near-consensus among economists that minimum wages substantially reduced employment. But that was long ago. These days only a minority of economists think raising the minimum to $15 would have large employment costs, and a strong plurality believe that a significant rise — although maybe not all the way to $15 — would be a good idea.

Why did economists change their minds? No, the profession wasn’t infiltrated by antifa; it was moved by evidence, specifically the results of “natural experiments” that take place when an individual state raises its minimum wage while neighboring states don’t. The lesson from this evidence is that unless minimum wages are raised to levels higher than anything currently being proposed, hiking the minimum won’t have major negative effects on employment — but it will have significant benefits in terms of higher earnings and a reduction in poverty.

Paint the economists at the Congressional Budget Office as radicals. Their findings were that raising the minimum wage to $15 would pull 1 million people out of poverty and plunge another 1.5 million into a poverty it’s hard to see how to alleviate. This CNBC article on the outcomes from Seattle’s real life experiment in increasing the minimum wage suggests that Dr. Krugman is exaggerating the consensus among economists:

The conflicting studies highlight a broader debate about what a $15 federal minimum wage might do for businesses and workers nationwide. Federal Reserve Chairman Jerome Powell even touched on the issue during his testimony before the House of Representatives this summer saying. “there is no consensus among economists … economists are all over the place on this.”

IMO the preponderance of the evidence suggests that the best policy is what we already have: in jurisdictions which feel the need, go ahead and increase the minimum wage and leave the rest alone. Add that none of the studies consider the run-on effects of a national increase and I would say the evidence is mixed at best. For example, I’ve never seen a study that takes minimum wage multiple union contracts into consideration in estimating the effect.

I think the best policy would be a gradual increase in the minimum wage with mandatory supporting votes in Congress along the way. That wouldn’t satisfy the “Fight for 15” crowd and it wouldn’t punish Red States but I do believe it would be a better policy.

7 comments… add one
  • Andy Link

    Were I King for a day I’d likely increase it modestly and then implement automatic annual increases based on CPI or whatever metric as is the case with other federal benefits.

  • TastyBits Link

    With the $15 minimum wage, will the $600 unemployment payment no longer keep the lazy layabouts at home living the ‘high life’?

  • steve Link

    There are a lot of studies on the topic. The last meta-analysis I saw had a nice funnel graph (love those) and they were pretty well split, so I would interpret that as we dont really know what will happen if we increase the minimum wage. I would also prefer a more modest increase. Individual states can have higher rates if they want.


  • I don’t have a problem with that, Steve. 100% is not a modest increase.

  • bob sykes Link

    $15/hr = $30,000/yr.

    The only way this works is if there is a total ban on immigration and manufactured imports.

    Otherwise the endpoint is,

    $10,000/yr = $5/hr (effective)(World average)

  • The only way this works is if there is a total ban on immigration and manufactured imports.

    Alternatively, the dollar could be devalued but in general I agree.

  • Drew Link

    For bonus points. And why is bob sykes correct? Greedy corporations? No, but thank you for playing.

    Because consumers, out of naked self interest and in no small measure declining purchasing power, will buy cheaper products and services. This necessitates the trade and much of the immigration policies we have.

    Prof Krugman needs to get out more.

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