Economists have been studying raising the minimum wage for decades, trying to determine whether an increase in base pay affects the overall economy, and if paying workers more eliminates jobs.
To continue our week-long series on the minimum wage, Here & Now’s Jeremy Hobson speaks with Arindrajit Dube, associate professor of economics at the University of Massachusetts Amherst, and David Neumark, professor of economics at the University of California Irvine.
Interview Highlights: Arindrajit Dube and David Neumark
Is it going to cost jobs and hurt employment to raise the minimum wage?
David Neumark: “That’s the age-old question in the economics of the minimum wage. It’s actually been studied for close to a hundred years, and certainly the topic is contested among economists and has been for a long time. My view of the evidence is that by far the lion’s share of it suggests that some job loss is from minimum wage increases, and those job losses as we might expect are concentrated on the very least-skilled workers. A lot of the research focuses on teens, but you can also focus on other very unskilled adults, high school dropouts and the like.”
Arindrajit Dube: “I think to date in the United States the best evidence suggests that the employment effect of minimum wage increases has been very small. This is a hard question to answer, so the reason why economists disagree has to do with that you need a reliable control group. We don’t have where we randomly assign different minimum wages to different labor markets, instead we have over two or three dozen states that have followed different minimum wages and we have to track what’s going on to jobs and compare these states with other, similar states.
One particularly reliable approach that we have used uses controls from adjacent counties across state borders, so one side of the border raises the minimum wage, the other does not, and we have tracked the two sides of the border for extended periods of time and here’s what we found, that when the minimum wage rises, employment in high-impact sectors like restaurants or groups like teens has not changed very much.”
On the argument that it has been a long time since the minimum wage has been raised and it is overdue for a raise in order to keep up with the cost of living?
Neumark: “Well, I don’t think just because we haven’t done something for a long time, there’s any reason to do it if you think it’s a bad idea. I think there are questions of what we are trying to achieve with the minimum wage. I honestly think that sometimes, when you push people hard enough, you end up with almost a moral argument as to why the minimum wage should be raised. If you think, as a policy matter, that the minimum wage should be at some particular percentile of the wage distribution, the tenth or the fifteenth or the twentieth, or some particular share of the median wage, then you might want a raise.
The federal minimum wage has gone up fairly recently and state minimum wages, of course, have gone up quite a bit now, but I don’t think there’s any clear reason why we would adopt one of those rules of thumb. I think you wanna weigh the gains and the costs. Some people gain, some people lose. Much of the evidence, not all of it, has very much difficulty finding much effect on the poverty rate, either positive or negative. I’ve characterized it as kind of a wash, it moves money around between different low income families, but doesn’t really raise a lot of them substantially”
What is the proper minimum wage for people to earn as much as possible without negatively affecting jobs?
Dube: “When it comes to a $15 federal minimum wage, that would affect something like a third to half of the workforce. We simply don’t have close historical precedence to leverage and say something very meaningful about what the impact will be. I think as the California and New York minimum wages go into effect, then we will have something more to say about that. I think there are both positive and possibly negative repercussions from having a much higher minimum wage than we have had in the past.
Something like $15 at the federal level will mean major wage increases for half of the workforce, but on the other hand we don’t know what happens in terms of businesses’ ability to pass those wage increases on as higher prices when the minimum wage is much higher, so at the same time, there’s also possible demand effects where workers are spending more of their money in the local economy. How these all add up is a very difficult question to answer and I think the frustration among voters, especially the lower wage workforce, is understandable given the wage stagnation and decline for several generations now.
I do think there are risks to keep in mind when it comes to job losses. Ultimately the decision to weigh those risks lie with the voters themselves. Is it possible that this process produces minimum wages that exceeds the judicious level in some sense? It’s possible, and I guess given where things are going, we’re going to be more likely to find that out in the coming years.”
This segment aired on May 5, 2016.