U.S. Markets closed

Helpful, Harmful, or Hype? 5 Economists Weigh in on Obama's Minimum Wage Proposal

Jordan Weissmann

If a meteor ever smashes into the earth, leaving the planet a dark lifeless wreck, there will still be two economists walking down a desolate post-apocalyptic Connecticut Avenue arguing about whether minimum wage laws kill jobs. As David Neumark, J.M. Ian Salas, and William Wascher document in a recent paper, the debate has been with us since at least 1913, when the U.S. Department of Labor was created. And it's probably not going anywhere soon.

Of course, Obama's proposal to up the minimum wage to $9 and index it to the cost of living has the issue is back in the news. And so, rather than rehash the entire history of the debate (for a somewhat detailed, if left-leaning, retelling, here's the EPI), I reached out to some of the country's leading labor economists for their takes. The key observations are underlined.

This Will Kill Jobs for the Lowest-Skilled Americans

Along with his frequent co-author, Federal Reserve Board economist William Wascher, David Neumark of the University of California, Irvine, is widely thought of as the leading conservative voice on the effects of minimum wage laws. The pair produced one of the seminal modern studies on the topic in 1992, arguing that a 10 percent increase in the minimum wage could reduce young adult employment by up to 2 percent. They've also argued those job losses make the minimum wage an ineffective tool for fighting poverty and produced an enormous survey of the available research some consider a touchstone.  

The problem of low-wage work that President Obama's proposal is intended to address is real, ongoing, and serious. But simply mandating that employers pay a higher wage is not an effective solution, because a higher wage floor reduces employment among low-skilled workers.

A White House "fact sheet" claims that the proposed wage hike would not reduce employment, referring to studies that "built on earlier research and confirmed that higher wages do not reduce employment." But only a highly selective cherry-picking of favorable studies can lead to the interpretation of the evidence pushed by the White House staff. Moreover, the fact sheet relies most heavily on the only study it cites directly -- a 2010 paper in the Review of Economics and Statistics, which asserts that there are "no detectable employment losses from the kind of minimum wage increases we have seen in the United States." This is a provocative claim, if true. In a new study, however, Ian Salas (UC Irvine), William Wascher (Federal Reserve Board) and I subject this study to rigorous empirical testing. We conclude that its claims are unfounded, and that the evidence continues to point to disemployment effects of the minimum wage. This conclusion is consistent with a large body of economic research on the minimum wage that William Wascher and I have surveyed, most of which shows that minimum wages reduce employment for the least-skilled workers whom the President's proposal is intended to help.

It Will Reduce Poverty and Have Little Effect on Unemployment

Arindrajit Dube, a professor at the University of Massachusetts Amherst, co-authored the paper cited by the White House. He and his collaborators have used sophisticated data comparing the border regions of states with different minimum wages to advance the argument that, no, the laws don't hurt employment.

Indexing It Is Smart 

Daniel Hamermesh, of the University of Texas at Austin, is one of the country's better known labor economists (and a favorite here at The Atlantic), who probably qualifies as a moderate on the issue. His book Labor Demand devotes a 10-page-section to minimum wage laws specifically.

It's a Perfect Pairing With Immigration Reform

In 1994, David Card, a Professor at University of California, Berkeley, and Alan Krueger, now the President's top economic adviser, produced one of the most influential papers of the 1990s arguing that minimum wage laws weren't really job killers. The duo looked at what happened to employment at fast food restaurants on the Pennsylvania-New Jersey border after the latter upped its minimum wage. Ultimately, they found no affects. The study led to an extended academic showdown with Neumark and Wascher.  

But Don't Expect It to Ease Inequality 

So how is that you can raise the minimum wage and not reduce jobs? Barry Hirsch of Georgia State University has offered one potential answer. When the federal minimum wage went up in 2007, he and his co-authors found that business owners in Georgia and Alabama just made their employees work harder to justify the expense. (They also upped prices and saw profits fall a bit). 

A $9/hr minimum wage is very much in line with historical experience here in the United States, as well as wages (when compared against say the median wage) in other developed countries. I think careful research on the topic has found that for this range of minimum wage increase, the almost unmistakable conclusion is that there will be little in the way of job losses, while the wages of low-end workers will get a boost. At the same time, turnover rates will most certainly fall in low wage sectors such as restaurants. And most importantly, research even by critics of minimum wages actually suggest that minimum wages reduce poverty and raise family incomes at the bottom end. Overall, a raise of this magnitude is simply (almost) keeping up with costs of living faced by low-income workers.

In fact, David Neumark's own recent work from 2011 (with Bill Wascher) suggests that on average, for 21-44 year olds (the broadest group they studied), a 10% increase in minimum wages reduces poverty by around 3%. They do not report these average effects, but are available for anyone to calculate (and were confirmed in my personal communication with him).

Raising the minimum wage will kill off a few jobs and is a slightly harmful idea. Not a disaster, because it affects relatively few people; and a smaller number will benefit. But it is a job-killing bill. There are better things to do.

On the other hand, the proposal to tie the minimum wage to the cost-of-living is nearly excellent (except we should tie it to average wages, not to the cost-of-living). Doing this would end the repeated fighting over the minimum wage that distracts attention from other labor issues that are so very much more important. It would be a great saving of political energy not to have to debate the minimum wage year after year. I'd even be willing to see it increased to $9 next year if in addition it were indexed as I propose.

It seems to me that the proposal meshes well with initiatives on immigration. The inflow of low skilled undocumented workers has been slowed a lot, and there is an attempt to move more and more hiring to "above the table". In that context a higher minimum wage makes some sense: we can decide that we don't want to allow so many low skilled workers to immigrate -- and so many very low productivity jobs to be created -- and maintain that with a higher minimum wage.

In addition, my reading of the evidence since the early 1990s is that apart from one or two "outliers", none of the serious literature has found big disemployment effects of minimum wages. Of course if the minimum was raised really high -- and enforced -- it would likely be a problem. But at reasonable levels the minimum has negligible effects on overall employment, and can make an important contribution to raising earnings and helping out workers on the lowest rung of the ladder, who have really suffered in the US over the past decades.

An increase in the minimum wage to $9 by the end of 2015, then indexed to inflation, is a reasonable proposal, albeit one with costs as well as benefits. It will modestly slow the creation of low wage jobs and businesses built around low wage work in ways difficult to measure. Our economy and those in other countries have handled minimum wages at this (real) level reasonably well in the past. A higher minimum wage will bolster the incomes of low wage workers, strengthen their attachment to jobs, and increase the dignity of work. It will reduce poverty, but not by much, the link between household income and individual workers' wages being relatively weak. A higher minimum wage will reduce earnings inequality, but only moderately. Over the last decade, increases in inequality have been due mainly to large losses in traditional middle class jobs and growth of earnings at the top of the distribution. Employment and earnings toward the bottom of the distribution have held up reasonably well. Minimum wage increases do little to restore or stem losses of employment and earnings in traditional middle-class jobs, these losses resulting primarily from technological change, globalization, and, to a lesser extent, declining private sector unionization.





More From The Atlantic

  • General Electric affirms commitment to Baker Hughes, shares jump
    Finance
    Reuters

    General Electric affirms commitment to Baker Hughes, shares jump

    Shares of General Electric Co's Baker Hughes rose sharply on Wednesday after the parent company said it no longer planned to shed its holdings in the oilfield services business before the expiration of a two-year lockup period, reversing an earlier stance that had cast uncertainty around the stock. General Electric last November said it was considering shedding its Baker Hughes holdings to refocus its business and boost cash flows. The announcement came just months after the conglomerate had purchased a 63 percent stake in the firm under a deal that combined its oil and gas services and equipment business with Baker Hughes to create the second largest oilfield services firm by revenue.

  • Can Alcohol Help You Live Longer? Here’s What the Research Really Says
    Health
    Time

    Can Alcohol Help You Live Longer? Here’s What the Research Really Says

    New research, which was presented at the American Association for the Advancement of Science’s annual conference, has found that moderate drinking is linked to a longer life. The results came from the 90+ Study, a research project out of the University of California Irvine’s Institute for Memory Impairments and Neurological Disorders that examines the habits of people who live to at least 90. Here’s what the research really says about alcohol and health.

  • This Is How Much Money You Should Have in Savings at Every Age
    Business
    Money

    This Is How Much Money You Should Have in Savings at Every Age

    Based on the priorities they shared, here are the steps you should target from your 20s to your 60s… and into retirement. What to do: Transfer any credit card balances to a 0% card and use the savings to pay down even more debt. Slay the work, learn negotiation skills, practice in advance, and ask for the raises and promotions you deserve.

  • An Unlikely Challenger In The Electric Car Race
    Finance
    Oilprice.com

    An Unlikely Challenger In The Electric Car Race

    Initially, electric and now the development of autonomous cars has been a major disrupter for the auto industry, the effects of which we have only just begun to see. Traditional auto manufacturers were initially written off as having too much legacy investments in the internal combustion engine and insufficient technology to keep up with the development of electric and self-driving cars. While starting from a low base growth has been solid, and although the electric vehicle (EV) challenge has driven much improved economy from the internal combustion engine, EVs are still carving out a place for themselves as battery performance steadily improves and charging infrastructure expands.

  • Trump signals he's open to mileage tax with praise of Oregon program
    Politics
    Yahoo Finance Video

    Trump signals he's open to mileage tax with praise of Oregon program

    The White House on Wednesday praised an experimental program in Oregon that charges a mileage tax to volunteer drivers, adding to signals that President Donald Trump is open to finding new revenue sources to pay for his proposed infrastructure program.

  • Ambulance abuse note woman pleads guilty
    News
    BBC News

    Ambulance abuse note woman pleads guilty

    A 26-year-old woman who verbally abused paramedics and left a foul-mouthed note on their ambulance in Stoke-on-Trent has admitted a public order offence. Kirsty Sharman, of Parsonage Street, also accepted writing the handwritten message, which said she did not care "if the whole street collasped [sic]" . Paramedics were dealing with a 999 call in her street in Tunstall on Sunday. At North Staffordshire Justice Centre, chairman of the magistrate said it was an "absolutely despicable incident". 'Abuse not acceptable' The ambulance had been responding to a next door neighbour's emergency call to help his wife, who was "experiencing breathing difficulties", prosecutor Liz Ryder told magistrates.

  • 2 Bargain Stocks You Can Buy Right Now
    Business
    Motley Fool

    2 Bargain Stocks You Can Buy Right Now

    Take, for example, natural gas companies Kinder Morgan (NYSE: KMI) and Antero Resources (NYSE: AR), which currently sell at bargain-basement prices compared to peers. It's a mind-boggling discount since they should trade at a premium valuation given their best-in-class operations. Kinder Morgan's stock has plunged a jaw-dropping 60% over the past three years even though the natural gas pipeline company's distributable cash flow (DCF) has only dipped about 7% from the peak.

  • 55 percent of Americans can't define a key tax term
    Business
    CNBC

    55 percent of Americans can't define a key tax term

    If you feel confused or overwhelmed during tax season, you're not alone. According to a new report from NerdWallet , there's a lot of uncertainty when it comes to tax-saving strategies, income tax brackets and the new tax bill in general.

  • Ford U.S. chief departs after behavior probe
    Finance
    Reuters

    Ford U.S. chief departs after behavior probe

    Ford did not give any details on what that behavior entailed. A company spokesman said the review was launched in the past few weeks after Ford received a report of inappropriate behavior. "We made this decision after a thorough review and careful consideration," said Ford Chief Executive Jim Hackett in a statement.

  • Apple Is Officially Taking Over the Watch Business
    Business
    Fortune

    Apple Is Officially Taking Over the Watch Business

    “The cellular version of the Apple Watch was in strong demand in the U.S., Japan, and Australia, where all major operators stocked it in time for the holiday season,” said Vincent Thielke, an analyst at industry researcher Canalys. In the fourth quarter of 2016, Apple’s six million shipments represented nearly half of all smartwatch sales. Apple sold eight million Apple Watches in the final quarter of 2017, the most since the product was introduced and the highest number of shipments in a single quarter for any wearable vendor, according to new estimates from Canalys and IDC.

  • Ex-Workers at Russian Troll Factory Say Mueller Indictments Are True
    World
    Time

    Ex-Workers at Russian Troll Factory Say Mueller Indictments Are True

    Marat Mindiyarov, a former commenter at the innocuously named Internet Research Agency, says the organization’s Facebook department hired people with excellent English skills to sway U.S. public opinion through an elaborate social media campaign. “I believe that that’s how it was and that it was them,” he said.

  • Boeing facing criticism for hard-nose supplier approach
    Business
    St. Louis Business Journal

    Boeing facing criticism for hard-nose supplier approach

    Airplane maker The Boeing Co. is facing heat these days for its determined stance in dealing with suppliers. Despite record orders, Boeing is getting some criticism for an initiative calling for some suppliers to cut costs, according to Bloomberg.  Boeing’s Partnering for Success initiative aims to streamline the manufacturer’s supplier chain. And based on financial returns — with its shares doubling since the start of 2017 — Boeing can argue its plan is working. However, Bloomberg cites suppliers who claim Boeing is seeking 10 percent price cuts for their products.  Boeing is coming off a bustling 2017. Boeing secured orders worth more than $90 billion in November alone.  Among the highlights

  • Here's How Internet Darlings Tessa Virtue and Scott Moir Respond to Those Relationship Theories
    Celebrity
    Time

    Here's How Internet Darlings Tessa Virtue and Scott Moir Respond to Those Relationship Theories

    It’s the question on everyone’s lips: are Tessa Virtue and Scott Moir dating? Leave it to Today Show hosts Hoda Kotb and Savannah Guthrie to try to get to the bottom of the mystery. In an interview with the skaters following their win, Kotb and Guthrie came right out with the question, asking about their dating status and calling their chemistry “undeniable.” “Would you guys just give us a little 411 on that situation?” Kotb asked.

  • U.S. Courts Jailing Thousands over Civil Debts 'Without Due Process,' ACLU Says
    News
    Newsweek

    U.S. Courts Jailing Thousands over Civil Debts 'Without Due Process,' ACLU Says

    Thousands of people are being arrested and jailed each year because of outstanding civil debts, despite the United States banning debtors' prisons nearly 200 years ago, according to a new report from the American Civil Liberties Union.

  • Business
    TheStreet.com

    3 Burning Issues Facing General Electric and Its New CFO This Week

    CFO Jamie Miller presented at two conferences Wednesday in the greater Miami area. At the corporate level GE has gone from a cash generator to a cash burner in the past two years, and that, more than any other factor, has destroyed value for GE shareholders.

  • Judge orders special counsel to turn over Michael Flynn evidence
    Politics
    Fox Business Videos

    Judge orders special counsel to turn over Michael Flynn evidence

    Retired FBI special agent Jeff Lanza discusses the significance behind a U.S. District Court judge order to turn over any potential evidence regarding President Donald Trump’s former national security adviser Michael Flynn.

  • This Olympic Halfpipe Skier Didn't Do a Single Trick. Here's How She Made It to the Games
    Sports
    Time

    This Olympic Halfpipe Skier Didn't Do a Single Trick. Here's How She Made It to the Games

    Hungarian freeskier Elizabeth Swaney may have made it to the 2018 Winter Olympics, but she took a bit of a different route than the rest of the athletes in PyeongChang. Swaney’s Olympic run began and ended during Monday’s ladies’ halfpipe qualification when she skied a run that featured absolutely zero tricks. There were only 24 quota spots available in women’s ski halfpipe at this year’s Olympics, but injuries combined with countries not using all their spots made it so that the No. 34-ranked Swaney was able to compete in the Games.

  • Kelcy Warren Says $1 Billion Energy Transfer Deal Is Fair to All
    Business
    Bloomberg

    Kelcy Warren Says $1 Billion Energy Transfer Deal Is Fair to All

    Kelcy Warren, the billionaire chairman of Energy Transfer Equity LP, dismissed complaints that he unfairly benefited from a 2016 private issuance of units in one of the pipeline company’s partnerships that was tied to the failed merger with Williams Co. Unitholders, including a Pennsylvania retirement fund, contend Warren and other Energy Transfer executives engineered the $1 billion deal involving only select investors so that Warren could reap more than $200 million. “Everybody thinks this is a bad deal,’’ Warren told a Delaware judge Tuesday. But the issuance helped stabilize the U.S.’s largest pipeline operator during a shaky time in an oil market downturn, he added. Warren’s lawyers said

  • Billionaire David Einhorn's Greenlight Bought 6M JC Penney Shares: 13F
    Business
    Investopedia

    Billionaire David Einhorn's Greenlight Bought 6M JC Penney Shares: 13F

    Billionaire David Einhorn, the head of Greenlight Capital, disclosed last week in his company's quarterly 13F report that he established 19 new positions during the fourth quarter of 2017. One of the most significant purchases that he made was in J.C. Penney (JCP), the retail giant which has become "moderately distressed," according to a report by Guru Focus. At a time when many analysts showed interest in retail, Einhorn helped to solidify the trend. Why might he have decided to focus his efforts on JCP stock in the past quarter? Nearly 6.4 Million Shares of JCP Greenlight Capital acquired close to 6.4 million shares of J.C. Penney stock in the final three months of 2017. The average purchase

  • 3 Stocks Warren Buffett Would Buy if He Were a Millennial
    Business
    Motley Fool

    3 Stocks Warren Buffett Would Buy if He Were a Millennial

    It's easy to see why Warren Buffett is considered the greatest investor of all time. His company Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has become one of the most valuable in the world largely due to his investments, both in stocks and the companies

  • 7 Must-Own Momentum Stocks to Buy
    Business
    InvestorPlace

    7 Must-Own Momentum Stocks to Buy

    Here are seven of the largest momentum stocks to buy that any market bull has just got to own. Shares are up an incredible 50% from the lows seen in October and were trading for as little as $300 as recently as early 2015. The company will next report results on May 3, after the close.

  • Finance
    Investopedia

    The Top 3 Boeing Shareholders

    Founded in 1916, just a few years after the Wright brothers' famous Kitty Hawk flight, The Boeing Company ( BA) has grown to become one of the largest aircraft manufacturers in the world and the most well-known name in the aerospace sector and defense industry in the United States. Boeing Capital Corporation supports all three divisions by providing financing for Boeing customers. Boeing's chief financial officer and executive vice president of Enterprise Performance & Strategy, Gregory Smith, is the largest insider shareholder of the company.

  • Is It Too Late To Buy Hecla Mining Company (NYSE:HL)?
    Business
    Simply Wall St.

    Is It Too Late To Buy Hecla Mining Company (NYSE:HL)?

    Hecla Mining Company (NYSE:HL), a metals and mining company based in United States, received a lot of attention from a substantial price movement on the NYSE in the over the last few months, increasing to $4.49 at one point, and dropping to the lows of $3.46. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Hecla Mining’s current trading price of $3.75 reflective of the actual value of the small-cap?

  • 3 Biotech Stocks To Avoid
    Business
    Forbes

    3 Biotech Stocks To Avoid

    Hope stocks. Fads. Castles in the sky. Those are the words I think of when I see a stock that sells for 100 times revenue or more. In my view, you almost have to be crazy to invest in them. Over the years, a typical stock has usually sold for about 1.4 times revenue. In today’s rich market the prevailing ratio is 2.25. So, we’re talking about stocks that sell for 44 times prevailing valuations, which are themselves rich. The vast majority of these stocks are biotech stocks, and proponents argue that they are worth the inflated multiples. These companies are searching for treatments for cancer, heart disease, multiple sclerosis or other diseases that terribly afflict humankind. Why shouldn’t they

  • Business
    Reuters

    Transocean upbeat about offshore recovery, despite quarterly loss

    Drilling contractor Transocean Ltd on Wednesday expressed optimism about a recovery in offshore drilling activity this year, despite reporting its third quarterly loss in a row. Companies that provide services and equipment for oil and gas exploration and production, among the worst hit by the 2014 oil price downturn, have grown optimistic about the future as oil prices recently have bounced back. In recent quarters, companies that focus on providing services to onshore shale producers have posted the biggest gains, while those exposed to offshore drilling have continued to face headwinds as those higher-cost projects require sustained oil-price gains to turn a profit.