…is bad memories of failed wage and price controls during the high-inflation 1970s. But a second, more current, reason is that businesses everywhere lobby them to keep out…. It’s time to ignore the lobbies and take courage…. [That] raising the minimum wage really would risk killing employment… today… looks unlikely…. And we need more investment in new technology to raise productivity, not less. Raising minimum wages would help stimulate that investment, while boosting consumer demand.
Japan famously had an “income-doubling” plan in the 1960s. With that successful example in mind, why not introduce a “minimum wage doubling” plan, to be carried out over a period of years, thus giving business the chance to adjust?…
…has brought home the imminence of an era in which most of us will be economically surplus. Keynes had an idea that the abundant society would be one of leisure and widespread artistic endeavor… a fetching optimism, which appears to have no purchase on the zero-sum, inequality-hugging societies of our time….
Abundance, and the values that recognize it, is where Doctorow wants to go… a utopia that takes the blogosphere and wikis and other online communities (probably not metafilter though) as the basic model for how an abundant society might organize itself…. The key move in establishing such communities is, in Doctorow’s imagined future, turning passive-aggression into a virtue—if someone has screwed up, someone else will just fix it; don’t bother trying to hold the erring party responsible…. Walkaways—self-deportees… real-world spaces, as easily pioneered as a new WordPress blog. They would be just as easily infested by trolls, too—but Doctorow seems to think that community norms could quite readily expel such infestations. My own experience of trying to moderate comments sections makes me less optimistic than I take him to be…
There’s a general consensus that early childhood education programs are a worthwhile investment in the United States for participants, their families, and the public at large. By nurturing both cognitive and noncognitive skills, a high-quality preschool education boasts impressive long-term benefits such as increased high-school graduation rates, lower crime rates, higher earnings, and better health outcomes. What’s more, when monetized, the benefits overshadowthe costs of these programs and even accelerate economic growth.
While there’s agreement on the benefits of pre-Kindergarten, there is much less of a consensus on what it should look like. Research shows that the quality of a program’s structure—student-to-teacher ratios, class size, or teacher qualifications, for example—and process—things such as classroom interactions, parental involvement, or instructional materials—certainly matter. Yet questions still remain about how preschool can help reduce the fadeout of cognitive skills and instead sustain the gains.
These typical considerations, though critical, leave out another factor: classroom diversity. A recent report by Jeanne L. Reid and Sharon Lynn Kagan of the National Center for Children and Families at Columbia University, Michael Hilton of the Poverty and Race Research Action Council, and Halley Potter of The Century Foundation tackles exactly this issue. The report not only surveys the limited research that connects socioeconomic and racial and ethnic diversity in early childhood classrooms to educational outcomes, but also highlights the importance of thinking about preschool classroom diversity as a contributor to the quality of a preschool education.
Researchers usually focus primarily on understanding how classrooms’ socioeconomic and racial and ethnic composition affects educational outcomes for students in Kindergarten through 12th grade. Through these studies, scholars have revealed that more socioeconomically diverse and more racially and ethnically diverse schools promote greater student achievement and provide a number of other benefits throughout those primary and secondary educational years. According to this report, though, there are substantially fewer studies that look at the impacts of preschool classroom composition.
One such study (co-authored by Reid and Douglas D. Ready of Columbia University) highlighted in the report observed 2,966 children in 704 pre-K classrooms and found that the children in classrooms with a middle-to-high average socioeconomic status—in short, classrooms that are more economically diverse—learned more receptive language, expressive language, and math skills than their counterparts in lower average socioeconomic status classrooms independent of the racial and ethnic diversity of their classrooms. That same study found that more racial and ethnic diversity in preschool classrooms was associated with higher language development outcomes.
Reid, Kagan, Hilton, and Potter in their report explain that the improved outcomes of students in socioeconomically and racially and ethnically diverse classrooms are likely due to peer effects. Children from higher-income backgrounds often enter pre-K more prepared than their lower-income peers. Through interactions, these higher-skilled preschoolers may help their lower-income peers learn.
Though more research is needed to understand the role that diversity plays in preschool outcomes, the reality is that preschool programs in the United States have a long way to go to becoming truly diversified classrooms. The four co-authors of the report note that most children in publicly available preschool today are segregated across income and race, with children from higher-income and non-Hispanic families most likely to enroll in the first place. To make matters worse, the data show that low-income children are often disproportionately enrolled into low-quality pre-K.
To address socioeconomic and racial and ethnic diversity concerns, researchers and policymakers have proposed implementing universal pre-K programs over ones targeted at disadvantaged children. Policies that address rising neighborhood segregation or local zoning policies also can help increase access to high-quality early childhood education and the economic diversification of classrooms starting in preschool. Moving forward, researchers and policymakers alike should incorporate concerns over diversity in preschool programs into their frameworks. After all, if the education of more productive adults begins in preschool, then equity should be integrated right from the start to ensure the future economic growth and productivity of the U.S. economy is as robust as possible.
The federal minimum wage today stands at $7.25 per hour, unchanged since 2009 despite rising prices and rising nominal wages for other workers. Indeed, the purchasing power of the minimum wage has been deteriorating for decades. Without legislative action by Congress every year—a very difficult policy endeavor—the minimum wage for the nation will continue to stagnate. This issue brief examines the importance of raising the minimum wage to boost broad-based U.S. economic growth amid rising U.S. income inequality and a still-tepid economic recovery. Policymakers need to understand the broad benefits of raising the minimum wage and whether there are any trade-offs to be made.
Sure to be in the spotlight are questions about whether and how the minimum wage:
Improves family incomes, especially in women-led households
Affects job prospects for low-wage workers, the unemployed, and youth entering the labor market
Boosts broad-based aggregate economic demand
Should be indexed to the rate of inflation or other macroeconomic indicators
This issue brief provides the most relevant details about the minimum wage, drawn from the Washington Center for Equitable Growth’s broad network of academic scholars studying this issue.
What are the effects of raising the U.S. minimum wage?
In a new working paper and issue brief for the Washington Center for Equitable Growth on the overall economic benefits of increasing the minimum wage for U.S. households, associate professor of economics Arindrajit Dube at the University of Massachusetts, Amherst, finds:1
robust evidence that higher minimum wages lead to increases in incomes among families at the bottom of the income distribution, and that these wages reduce the poverty rate. A 10 percent increase in the minimum wage reduces the nonelderly poverty rate by about 5 percent. At the same time, I find evidence for some substitution of government transfers with earnings, as evidenced by the somewhat smaller income increases after accounting for tax credits such as the Earned Income Tax Credit and noncash transfers such as Supplemental Nutrition Assistance Program. The overall increase in post-tax income is about 70 percent as large as the increase in pretax income.
Dube concludes that a “substantial increase in the federal minimum wage can play an important role in reducing poverty and raising family incomes in the United States at the bottom of the income ladder while reducing the use of public assistance.” He notes that “the loss in cash and noncash transfers and tax credits among those who would benefit the most from minimum wage increases is likely to dampen some of the benefits, especially among those around the poverty line, yet the resulting public savings could be ploughed back into further shoring up the safety net—in turn further increasing the complementarity between minimum wages and income support for raising the incomes of families at the bottom of the income ladder.”
Dube says “these findings are consistent with some individuals losing eligibility for benefits as a result of increased income.” He notes that “typically, eligibility for supplemental nutrition assistance, for example, requires income to be less than 130 percent of the federal poverty threshold, which for this population binds just under the 15th percentile. On average, those in the bottom quartile of the income distribution can expect an approximately $525 increase in annual income from the minimum-wage policy; the gains are largest around the 15th percentile.” (See Figure 1.)
Figure 1
Many U.S. households rely on the incomes of women, especially those headed by single mothers. A recent study by economists David Autor of the Massachusetts Institute of Technology (and a member of Equitable Growth’s Research Advisory Board), Alan Manning of the London School of Economics, and Christopher Smith of the Federal Reserve Board examines all state and federal minimum wage increases from 1979 through 2012, and measures the effect of the raises at each point of the wage distribution.2 One key piece of their findings is that because women are generally paid less than men—and therefore fall closer to the bottom of the wage spectrum—the minimum wage has larger effects on female wage inequality. For wage inequality among women, Autor, Manning, and Smith find that the minimum wage had particularly strong consequences. Between 1979 and 2012, the declining minimum wage was responsible for 48 percent of the increase in female wage inequality between the bottom and middle of the wage distribution. (See Figure 2.)
Figure 2
Women are hit particularly hard by anomalies in pay in industries where tipped pay is prevalent such as the restaurant industry. These industries boast many working mothers. Sylvia A. Allegretto, an economist and co-chair of the Center on Wage and Employment Dynamics at the Institute for Research on Labor and Employment at the University of California, Berkeley, wrote an essay for Equitable Growth about the vagaries of the minimum wage for tipped employees.3 In it, she shows that tipped workers are overwhelming female who typically earn low wages. They also have few workplace benefits, live disproportionately in poverty, and experience high rates of sexual harassment. One overall finding about the difference in the regular minimum wage and the lower tipped minimum wage illustrates the problem at hand. (See Figure 3.)
Figure 3
Former Equitable Growth economist Ben Zipperer trained his eye on the impact of the minimum wage on youth employment. In a working paper, he and his co-authors examine one group of low-wage workers—teenagers—whose hourly wages are significantly raised by minimum-wage increases.6 They note that a common objection to raising minimum wages is that doing so will reduce the employment opportunities of low-skilled workers such as teenagers. They show, however, that some studies find negative effects of the minimum wage on teen employment because they fail to control for other economic factors that independently reduced employment around the time of a minimum-wage increase. After controlling for these factors, they demonstrate that the large negative effect on teen employment disappears.
Zipperer and his co-authors note that economists have developed a large body of research comparing the labor-market outcomes in states that raise their minimum wage versus those that don’t. Yet a naive comparison of these two groups of states can lead to misleading conclusions because the variation of state-level minimum-wage policies is not random (which is ideal for assessing the impact of government policies) and is instead geographically concentrated. (See Figure 4.)
Figure 4
Zipperer and his co-authors show that this map divides states into two groups: states with high average minimum wages and states with low average minimum wages during the 1979–2014 period. States that have high minimum wages were more likely to have been raising their respective wage floors above the federal floor. States with low minimum wages typically followed federal policy. This difference is clearly region-specific.
This clustering of minimum-wage policies within regions of the country is an obstacle for credible research on the minimum wage because comparing the employment of minimum-wage raising and nonraising states effectively compares regions such as the Northeast versus the South. Employment patterns differ in these regions because of a host of economic and political reasons not affected by the minimum wage. High minimum-wage states, for example, also boast higher unionization rates and experienced smaller declines in unionization over the past three decades.
Zipperer in 2015 also did an analysis of how raising the minimum wage ripples through the workforce.7 In it, he says that “although the minimum wage enhances the bargaining power of many low-wage workers, an increased minimum wage’s effectiveness in doing so dissipates as it spreads across the wage spectrum, essentially disappearing for middle-class wage earners.” This ripple effect, he says, “has important implications for wage inequality among workers in the United States.” (See Figure 5.)
Figure 5
How policymakers should think about unemployment and the minimum wage
Policymakers need to ask whether the ongoing debate about raising the minimum wage and any resulting job losses is misplaced. David Howell, a professor of economics and public policy and director of the doctoral program in public and urban policy at The New School, argues persuasively that the stalemated academic debate about the minimum wage and any job losses whatsoever ignores the net benefits of raising the minimum wage.8 Howell, an Equitable Growth 2014 academic grantee, notes that “when the criterion for raising the minimum wage is concerned only with the cost side of an increase, the costs of some predicted job losses are all that matters.” But his research, and that of others he points to in his working paper for Equitable Growth, highlights that “there are obviously benefits to raising the legal wage floor that should be counted and compared to the costs.”9
Howell points out that workers receiving wage increases as a result of a rise in the minimum wage benefit directly either because they are earning between the old minimum wage and the new one or because they earn a bit above the new minimum wage since employers increase wages to maintain wage differentials among workers by skill or seniority. The benefits are also evident for taxpayers, he says, because a much higher minimum wage means there is less need for means-tested government programs such as the Earned Income Tax Credit and Supplemental Nutrition Assistance Program for working families.
“If we really care about maximizing employment opportunities, then we should not hold a decent minimum wage hostage to the no-job-loss standard,” says Howell. “Rather, we should put a much higher priority on full-employment fiscal and monetary macroeconomic policy, minor variations of which would have massively greater employment effects than even the highest statutory wage floors that have been proposed.”
Indeed, Howell argues, “it’s worthwhile to look at the experiences of other advanced economies of the world.” In another analysis for Equitable Growth, he looks at lessons from other rich countries.10 He examines an array of data to show that the United States is at the low end of the minimum-wage level in terms of the median wage and purchasing power, pointing in particular to the purchasing power of a McDonald’s Corp. restaurant employee in select advanced countries. (See Figure 6.)
Figure 6
He concludes this research with the finding that “properly designed and implemented, much higher living standards are possible for working families in the United States by setting the federal minimum wage far above the current level of $7.25 without affecting overall employment opportunities for minimum-wage workers.”
How would indexing the minimum wage affect hourly workers?
Zipperer notes that “economic research on the minimum wage shows that between 1979 and 2012, more than 38 percent of the rise in inequality between the wage paid to the 10th percentile wage (the bottom 10 percent of U.S. workers earn this wage or less) and the median wage is due to the minimum wage failing to keep up with the median wage.”11 By indexing the minimum wage to the median wage, he argues that policymakers would “help prevent widening disparities between those at the bottom and the middle of the wage distribution.”
Importantly, wage indexing allows the minimum wage to rise in ways that the labor market can easily accommodate. Indexing the minimum wage to the general wage level means that roughly the same proportion of workers will earn the minimum wage year after year when the minimum wage rises, says Zipperer. As long as underlying wage inequality does not change too much, fixing the distance between the minimum and median wage will keep constant the share of workers earning at or near the minimum wage.
Because a regularly indexed minimum-wage increase will not substantially alter the share of workers earning the minimum wage, employers will more easily adjust to these indexed increases than they would to the irregular and larger increases typical of the current federal procedure and many of the state and local procedures, Zipperer says. Indexing to the median wage would require employers to raise wages for roughly the same proportion of their employees each year, whereas failing to index typically results in employers being required to raise wages for a much larger share of their workforces on less predictable basis. Here’s how indexing the minimum wage to the median wage—or alternatively to the rate of inflation—would guarantee minimum-wage increases every year. (See Figure 7.)
Figure 7
Conclusion
In testimony by Equitable Growth Executive Director and Chief Economist Heather Boushey before the U.S. Senate Committee on Health, Education, Labor, and Pensions on “From Poverty to Opportunity: How A Fair Minimum Wage will Help Families Succeed,” Boushey pointed out the three overarching benefits of raising the minimum wage:12
It would reduce poverty. According to various economic estimates, raising the minimum wage would lift millions of working families out of poverty.
It would help family breadwinners support their children. The typical minimum-wage earner brings in half of their family’s income. Congress should also take care to make sure that other benefits for low-wage workers provide a full package for low-wage workers and their families, as families will also need help with access to affordable and quality health care, childcare, and housing, even at a higher minimum wage.
It would deliver positive economic effects above and beyond lowering the poverty rate. Economic research points to the conclusion that a higher minimum wage does not cause greater unemployment, boosts productivity, and addresses the growing problem of rising income inequality.
Boushey concluded her testimony by noting that “the minimum wage is not a silver bullet in the fight against poverty [yet] any effort to reduce poverty and increase economic mobility at the bottom rungs of the income ladder into the middle class needs to include an increase in the minimum wage.” She said that, “the weight of economic research shows that raising the minimum wage would reduce poverty and work in tandem with other poverty-reducing programs to promote income mobility from the bottom up. In the largest economy on the planet, we need to work harder to reduce poverty. Increasing the minimum wage needs to be part of that effort.”
…responds to what the editors describe as academic economists’ less-than-healthy reaction to Piketty. It asks an interdisciplinary crowd of social scientists to tug at the various threads of his argument to see whether it unravels. (It also includes a fascinating essay from an emboldened Piketty on issues such as the potential of collective bargaining to reduce inequality generated by capitalism.) The book serves as a fantastic introduction to Piketty’s main argument in Capital, and to some of the main criticisms, including doubt that his key equation — r > g, showing that returns on capital grow faster than the economy — will hold true in the long run.
It also contains thoughtful interventions in debates about the political economy of inequality. Economist Branko Milanović, for instance, documents how sharing capital more equally across the population could weaken the impact of a rising capital share (when those who own capital gain more of an economy’s income). Stemming the tide of rising inequality in a period of slow growth may require redistribution of capital, not just income…
Must-Read: The Federal Reserve has managed to get the sailing ship that is the economy 200 yards from a rocky coast in hurricane season: it will be able to do little to boost demand in the event of any adverse shock. The way I see it, the Federal Reserve should be desperately trying to boost inflation now so it can raise interest rates in the future so that it has policy room to maneuver whenever the next adverse macroeconomic shock comes.
…What does this mean for monetary policy? The assumption manifest in the statements of the Fed and most commentary is that policy should be tightened over time through rising interest rates and a reversal of quantitative easing. Perhaps, but tightening involves real dangers and needs to be carried out with great care. The Fed has committed itself to a symmetric 2 per cent inflation target and inflation has been below 2 per cent for eight years. If a booming economy in the ninth year of recovery with this prelude is not the time for inflation above 2 per cent, when would such a time arise?
Moreover, economists should now have great humility regarding the inflation process…. Price inflation remains very much under control…. Wage growth in excess of price growth would be desirable…. The Fed will have little room to respond if it overdoes things and the economy goes into recession. Sometimes the hardest and most important decisions in government involve doing less rather than more. This is one of those times for the Fed. Caution should be its watchword…
…Speaking at the Milken Global Conference last week, which is attended by key people in the financial industry, he boasted, “You should all thank me for your bank stocks doing better.”… Increasing the risk of another financial meltdown and a large recession, which would once again be paid for mainly by all the people who lose their jobs, homes, retirement savings, and so on rather than the wealthy interests benefitting from the change in policy, is worth making bank stocks do better. If the Financial Choice Act is passed, the risk of a deep and prolonged recession, which would once again hurt millions and millions of households, will go up…
…even advanced tasks like speech recognition and translation can now be performed by relatively cheap computers and smartphones. This column describes how labour-saving technology appeared to play a key role in one of the most dramatic cases of labour unrest in recent history–the Swing riots in England during the 1830s–serving as a reminder of how disruptive new, labour-saving technologies can be in economic, social, and political terms…
Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for March 2017. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.
The quits rate remained at 2.1 percent in March, the level it’s been at, except for one month, since May 2016.
The number of unemployed workers per job opening dropped to 1.25, a low not seen since early 2001.
The vacancy yield, or the number of hires per job opening, ticked down slightly to 0.92. The yield has been around this level for a year at this point.
Since I get to go first, I will preemptively take the hyper-Olympian and very long-run historical point of view…
The human brain is a massively parallel supercomputer that fits in half a shoebox. It draws 50 W of power. Human fingers are amazingly fine manipulation devices. Human back and leg muscles—especially when testosterone soaked—are quite good at moving heavy objects. And so, back in the environment of evolutionary adaptation, we used our brains, big muscles, and fingers to lead interesting, if stressful and short, lives.
But as history has enrolled we have done other things to add economic and sociological value than use our backs, our fingers, and our brains to innovate and create. Over the long historical sweep, backs and fingers have declined and we have turned many of us into, instead:
robots performing repetitive tasks,
microcontrollers for domesticated animals and machines,
relatively simple accounting and recording software bots,
personal servitors,
social engineers trying to keep all those things controlled by brains—especially by the testosterone soaked ones—working together harmoniously. With limited success.
while remaining innovators and creators.
Backs started to go out with the domestication of the horse. Fingers with the invention of the spinning jenny. Microcontrollers and accounting ‘bots, we can see, are now on the way out too. So, fortunately, are the jobs that treat humans as simple robots.
That leaves us with a future of work made up of:
personal servitors,
social engineers,
innovators and creators.
Utopia or dystopia? Heaven or hell?
Over to you, James. And, in a broader sense, over to all of you—in the audience, and out there in Internet land…
