Wednesday, March 29, 2017

Does raising the minimum wage kill jobs?

One of the longest running battles in economics is whether raising the minimum wage destroys jobs.

In fact, we have an on-going argument with a good friend of this blog.  The argument is over the effect of raising the minimum wage.  We fully support the "fight for $15", "$10.10", $9.00 or any raise. While our friend is worried over the job loses when wages rise.

The minimum wage was last increased in July of 2009.  It was increased from $5.15 in 2007 to $7.25 in 2009 under president George W. Bush. The raise was attached to small business tax cuts.

The minimum wage is also a good indicator of hard right turn congress has taken in the past 30 years. The minimum wage is now an ideological issue for conservatives. Raising the minimum wage is a non-starter in the current, conservative congress.

Most of the states with the Federal Minimum Wage or below(Georgia) are "Red" - Republican voting states.

There used to be a broad consensus for minimum wage hikes by both Democrats and Republicans with steady increases posted during the 70s, 80s, and 90s (except for Reagan). Back then there were many more White males earning minimum wage in a wide variety of jobs.

Now the image of a minimum wage worker is a surly, Black women asking: "If you want fries with that ?"


Fact: Most studies find no or very small job loss when the minimum wage is raised.

Fact: A majority of states(29) have a higher minimum wage than the federal minimum wage.

The definitive study on the effect of raising the minimum wage was done by John Schmidt in 2013 for the Center for Economic and Policy Research.  He look at a meta sample of all other minimum wage studies available.  Basically, here took all the data points in 64 studies and then grouped them into one giant study (n=1,492).

The report also discusses the offsetting reason why job loses are small.


Finally there are some more recent reports on raising the minimum wage

Here is another good research report that says that raising the minimum wage has a small negative effect on employment. They set the rate of job losses (elasticity) at -0.1. A 10% increase in wages will causes a 1% drop in employment.

Almost all economist accept there will be some job loses if we raise the minimum wage.  The real question is: What is the size of the loss ?  Who does it affect ? and will the additional income effects offset the job loses ? 

At the Evil Black Economist, we lean toward the more optimistic prediction.  The increase in income for low-wage workers will lead to a general increase in demand. The new demand will create low-wage jobs that will offset any low-wage job loses.


The Congressional Budget Office writes clearly about the effect on page 10. 

" If employment increased under either option, in CBO’s judgment, it would probably be because increased demand for goods and services (resulting from the shift of income from higher-income to lower-income people) had boosted economic activity and generated more jobs than were lost as a direct
result of the increase in the cost of hiring low-wage workers. "


In summary, the small(if any) job loss is worth huge increase in wages for existing low-wage and hear low-wage workers though out society. 

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