Making Choices

Writing at Inside Sources, Aparna Mathur comes at the decision to raise the minimum wage from another tack:

The movement for a $15 minimum wage in cities such as New York, Seattle and Los Angeles has many economists and policymakers worried. Supporters of a minimum wage hike have typically favored modest hikes in the minimum wage under the assumption that modest hikes could result in no more than modest job losses. A small negative impact on employment could be acceptable so long as it resulted in a large hike in earnings for other workers. But let’s step back and ask what we mean by “modest” job losses? Last year, the Congressional Budget Office modeled an increase in the federal minimum wage from $7.25 to $10.10 and found that nearly 500,000 jobs could be eliminated as a result. A loss of 500,000 jobs is not trivial, but would these losses be acceptable if nearly 16.5 million workers experienced wage gains? This is the quintessential trade-off associated with minimum wage hikes: a lost job for some and a higher wage for others. From my perspective, this trade-off is not only unacceptable, but also one that policymakers need not make.

She continues by pointing to the Earned Income Tax Credit as another way of boosting the incomes of low wage workers which won’t have the adverse effect of throwing the people you’re presumably trying to help out of work.

One of the complications is that workers earning the minimum wage are not a monolithic group. According to Pew Research almost two-thirds are part-time workers, whether by default or by design is not mentioned, and more than 50% are under the age of 24. Just about half are white women. A quarter self-identify as something other than white. The overwhelming preponderance work in fast food or retail.

It seems to me that in order to come up with an effective policy you’ve got to decide which group you’re trying to help. A policy tailored to help white college kids probably won’t do much for full-time Hispanic workers over the age of 25 who are trying to support a family and send money back to Mama in Mexico. And policies designed for either of those groups probably won’t do anything for black teenagers.

Of course, if the objective of the policy is to signal your concern for people earning a low income without actually requiring you to have any concern for those people, full speed ahead with upping the minimum wage!

3 comments… add one
  • ... Link

    Wal-Mart decided to raise wages at the bottom end, and they pissed off their more senior workers, who now have seen their earned raises eroded as a status marker. Essentially, they’ve all been demoted. Also, those workers expect to get less in the way of pay and benefit increases going forward, to cover the losses. But that was last week’s news.

  • steve Link

    It is about 6 months since the change, and we are already reaching conclusions. Seems awfully early.


  • You say “reaching conclusions”, I say “observing and describing the results”. As I wrote in a previous post, “the early returns”.

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