Arin Dube and Others on Why We Should Raise the Minimum Wage…

Arindrajit Dube: The Minimum We Can Do:

During most of the 20th century, wages in the United States were set not just by employers but by a mix of market and institutional mechanisms. Supply and demand were important factors; collective bargaining and minimum wage laws also played a key role…. While we can set a wage floor using policy, should we? Or should we leave it to the market and deal with any adverse consequences, like poverty and inequality, using other policies, like tax credits and transfers?… The low-wage work force has become older and more educated over time…. The high-water mark for the minimum wage was 1968, when it stood at $10.60 an hour in today’s dollars, or 55 percent of the median full-time wage. In contrast, the current federal minimum wage is $7.25 an hour, constituting 37 percent of the median full-time wage….

The social benefits of minimum wages from reduced inequality have to be weighed against possible costs. When it comes to minimum wages, the primary concern is about jobs. The worry comes from basic supply and demand: When labor is made more costly, employers will hire less of it. It’s a valid concern, but what does the evidence show? For the type of minimum wage increases we have implemented in the United States, the best evidence shows that the impact on jobs is small…. A particularly reliable methodology compares adjacent counties that are right across the state border but that experience different minimum wage shocks…. While higher minimum wages raise earnings of low-wage workers, they do not have a detectable impact on employment. Our estimates… suggest that a hypothetical 10 percent increase in the minimum wage affects employment in the restaurant or retail industries, by much less than 1 percent; the change is in fact statistically indistinguishable from zero….

But how can minimum wages rise without causing job losses?… Going beyond simple supply and demand, economic models are getting better at incorporating frictions caused by the costs of finding jobs and filling vacancies, which turn out to be quite important when analyzing labor markets…. Moderate increases in the minimum wage, in other words, can reduce vacancies and turnover instead of killing jobs…. But even if minimum wage policies reduce inequality and improve the functioning of low-wage labor markets, are there better alternatives when it comes to helping low-income families?…

The minimum wage can also increase the efficacy of a policy that is sometimes pushed as a substitute: the earned-income tax credit. This encourages more people to seek work, but can push wages down; a minimum wage ameliorates this…

And:

Jared Bernstein: Minimum Wages, Bargaining Power, Poverty, and Work:

Look, at the end of the day, what policy makers really need to be looking for are ideas that most efficiently reduce wage and income inequality.  That’s a main reason why I’ve been so stuck on full employment, as it perfectly meets that criterion.  It’s highly inefficient to stay stuck in this mode of underutilized labor resources (i.e., high unemployment) and as we show in Figure 2.7 in our new book on full employment, tight labor markets are highly equalizing. They provide low-wage workers with some of the bargaining power they severely and increasingly lack.

Same with the minimum wage…. Left unattended, the vast imbalance in bargaining power between wage setters and the lowest-wage workers would drive their wages down to privation levels, and thus Congress sets a wage floor. It complements that wage floor with other policies, like the Earned Income Credit, to help raise the paychecks of low-income workers to level wherein they can get closer to meeting their families basic needs…. In my view, there’s nothing wrong, and a lot right, with the idea that work for able-bodied adults is an important pathway out of poverty. But the only, and I mean ONLY, way that works is if ample living-wage jobs are available to all comers…. Otherwise, “work as a pathway out of poverty” is nothing more than a cruel construct, mindlessly repeated by ideologues with little connection to the real world.

Plus: Mike DeBonis and Reid Wilson: Push for minimum wage hike led by localities, Democrats. Kathleen Geier: Coming soon: a $12 (or more) minimum wage? Paul Krugman: Better Pay Now.

As I see it, there have always been three and only three major arguments against raising the minimum wage:

1. That doing so will destroy jobs and create unemployment at the low end of the labor market.

2. There are superior policies–like the Earned Income Tax Credit.

3. That people receiving wages artificially boosted by the minimum wage will have their self-reliance and morale undermined.
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   Considering each of these three:

4. That doing so will destroy jobs and create unemployment at the low end of the labor market, and so it will do more harm than it does good in getting more income to the poor. The empirical work tells us very surely that this argument is simply wrong for levels of the minimum wage found in America today.

5. There are superior policies–like the Earned Income Tax Credit. I like the Earned Income Tax Credit. If I have any significant amount of treasure stored up in heaven, it is almost surely due to the staffwork I did for the Clinton Administration in 1993-94 on the large and broad regional distribution of the benefits from expanding the Earned Income Tax Credit. But the EITC has drawbacks. It does depress market wages. It drafts the IRS into the role of a broad-based social-insurance administration, which the IRS is not suited for. It is subject to a great deal of administrative error, and if the EITC becomes too large to irresistible incentives for fraud. It is not self-enforcing, which the minimum wage by and large is. The question of what is the optimal balance between EITC and minimum wage is an object of ongoing research, but the answer is almost surely not (1,0).

6. That people receiving wages artificially boosted by the minimum wage will have their self-reliance and morale undermined. Such people will realize that a good chunk of their pay is the result of government fiat rather than of the value of their work. They will learn from this that not hard work but political influence is the way to get ahead. And this will prime them to seek out rent-seeking opportunities elsewhere as well.

Are there any that I have missed?