海角大神

I鈥檝e always thought the national minimum wage is a lot more important than most people tend to think.聽 By definition, it sets a floor on the low end of the job market, though to their credit, many states now set their minimums above the federal level of $7.25 (Washington state clocks in at a cool $9.04).聽 So it鈥檚 a floor, not a ceiling.

Lots of low-wage workers and their families depend on it, and its long slide, as shown in the figure below, especially over the Reagan years, contributed to wage losses and working poverty for many who toil to this day in low-end services.

Of course, when someone raises the idea of a raise, you hear a huge outcry from some in the business lobby.聽 Their generic argument is that the increase will lead to job losses among those low-wage workers affected by the higher wage level.聽 Such workers, they say, will now be 鈥減riced out of the labor market.鈥�

Yet, you hear the opposite from groups that represent low-wage workers interests, groups like the National Employment Law Project, or NELP (proud disclosure: I鈥檓 on their board).

Now, let鈥檚 just pause here for a second.聽 The DC lobby that represents low-wage employers say they鈥檙e against the increase but not because it would raise labor costs and cut into profits, but because it鈥檚 bad for the workers themselves, who will suffer reduced hours and layoffs.聽 But the workers鈥� groups say 鈥淏ring it on!鈥�

Hmmm鈥�who you gonna believe?

In fact, with all this state variation鈥攁nd some international variation as well (the UK has seen quite sharp increases in its minimum wage since it was re-introduced in the late 1990s)鈥攚e鈥檝e had the benefit of natural experiments, rare in economics, enabling econometricians to fight it out as to the job loss effects (here鈥檚 with the great John Schmitt from a few years back).

It鈥檚 a large, gnarly literature, but I think it鈥檚 fair to say that most objective parties come away thinking that the hysteria around the increase is overblown.聽 It helps some low-wage workers, most of whom are adults, many of whom have kids.聽 Some studies find small job loss effects, some none.

A much more interesting question, economically speaking, is why don鈥檛 we see the horrifics that opponents scream about?聽 I mean, the textbook theory implies that a one penny increase in a market wage should lead to massive unemployment, and that, I can say with 100% confidence is not at all what we鈥檝e seen.

In fact, there are numerous other channels through which the higher wage is absorbed:

鈥損rofits: to the extent that the increase is paid for out of profits, we shouldn鈥檛 expect job losses.聽 And in an economy where profits have dazzled while paychecks have fizzled, that ain鈥檛 a bad thing.

鈥損rices: some studies find that a small bit gets passed through to higher .

鈥損roductivity: to the extent that higher wages reduce turnover and vacancies, a higher minimum can partially pay for itself by squeezing out such inefficiencies.聽 It鈥檚 not wishful thinking鈥攕ome have found just that.

鈥搑easonable rates: it matters what the level you raise it to, and historically, increases have affected less than 10% of the workforce, often even smaller shares.聽 With relatively few in the 鈥渁ffected range鈥� we wouldn鈥檛 expect to see large distortions.

鈥搃t鈥檚 stimulus!聽 Minimum wage workers tend to spend the extra cash, so there鈥檚 more economic activity than otherwise would occur鈥攂tw, even under the redistributive scenario described under 鈥減rofits鈥� above, you鈥檒l get this affect if low-wage workers consume more of their last dollar than those in the sky boxes.

Finally, I鈥檝e got to partially give it up to Gov Mitt Romney as the dude has taken significant incoming from his rivals for advocating indexing the national minimum wage, as is already done in some of those states noted above, so it doesn鈥檛 lose value over time as prices rise.聽 It鈥檚 an excellent idea in that a) you avoid the dips in the figure below鈥攚hich shows the real value of the national minimum since 1960, and b) businesses know what to expect.聽 I mean, after all, we index lots of stuff like this, including Social Security and EITC benefits.

Why just 鈥減artially鈥� in terms of giving it up to Mitt?聽 Again, look at the figure.聽 We don鈥檛 want to index the national wage to such a historically low level.

So where should we set it?聽 I need to do more research on the question of 鈥渁ffected range鈥� as noted above, but given that a national campaign will take numerous years to gain traction, I suspect I鈥檒l end up in the $9-$10 range, phasing it in starting a year or so down the road. 聽That鈥檚 higher than the historical record as shown below, but of course, average wages have gone up considerably over these years and the divergence between the wage floor and the average is both a symptom and a cause of increased earnings inequality (a graph of the minimum wage compared to the average wage would trend downward; I鈥檒l make that soon).

What鈥檚 that?聽 I鈥檓 dreaming??!!聽 I don鈥檛 think so.聽 Surely there鈥檚 a minimum wage increase out there in our future.聽 The sooner we get to work on it, the sooner that future arrives.