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A Good Roundup on the Minimum Wage

July 24, 2015, 11:50 am

David Brooks has what looks to be a pretty even-handed piece on what academic work shows on the minimum wage.  A few highlights:

Recently, Michael Wither and Jeffrey Clemens of the University of California, San Diego looked at data from the 2007 federal minimum-wage hike and found that it reduced the national employment-to-population ratio by 0.7 percentage points (which is actually a lot), and led to a six percentage point decrease in the likelihood that a low-wage worker would have a job.

Because low-wage workers get less work experience under a higher minimum-wage regime, they are less likely to transition to higher-wage jobs down the road. Wither and Clemens found that two years later, workers’ chances of making $1,500 a month was reduced by five percentage points.

Many economists have pointed out that as a poverty-fighting measure the minimum wage is horribly targeted. A 2010 study by Joseph Sabia and Richard Burkhauser found that only 11.3 percent of workers who would benefit from raising the wage to $9.50 an hour would come from poor households. An earlier study by Sabia found that single mothers’ employment dropped 6 percent for every 10 percent increase in the minimum wage....

What we have, in sum, is a very complicated situation. If we do raise the minimum wage a lot of people will clearly benefit and a lot of people will clearly be hurt. The most objective and broadest bits of evidence provoke ambivalence. One survey of economists by the University of Chicago found that 59 percent believed that a rise to $9 an hour would make it “noticeably harder” for poor people to find work. But a slight majority also thought the hike would be worthwhile for those in jobs. A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs.

So 900,000 would get up to a 25-40% raise while 500,000 would get a 100% cut.

Tags: , ,
Category: Economics

25 Comments

  1. mk:

    could it be that they (the govt.) know this? maybe it's not a good thing for the people getting a bump up their pay. like you have pointed out before, many seniors on SS are looking for work that will allow them to keep receiving there SS checks. this bump up may put actually hurt them. they may need to quit their job or work less hours. and on and on and on. "that which is unseen"...

    July 24, 2015, 12:25 pm

  2. esoxlucius:

    What bugs me is my labor is my property. What gives a government the right to set my price? How is this not a violation of my property rights?

    July 24, 2015, 1:14 pm

  3. Matthew Slyfield:

    The big beneficiary of minimum wages / minimum wage hikes are the labor unions and indirectly corporate managers in union shops. The unions use a minimum wage hike to argue that their members should get an increase of the same percentage, so they stay ahead of the minimum wagers by the same percentage margin. If it's a big enough hike, (or several mw hikes build up) then you have to increased salaries for the line managers, and then salaries need to increase for middle management then upper management.

    July 24, 2015, 2:48 pm

  4. HenryBowman419:

    This is amazing — when did David Brooks acquire an actual brain? The folks from Beta Reticuli must have visited him and assisted him.

    July 24, 2015, 3:44 pm

  5. ColoComment:

    Don Boudreaux at cafehayek.com has been beating this drum for all the years that I've been reading him. He's creative enough to keep finding new ways to say that the good that comes from MW does not outweigh the bad effectsl. For example.
    http://cafehayek.com/2015/07/pooling-the-effects-over-time.html

    July 24, 2015, 6:36 pm

  6. J K Brown:

    That minimum wage throws some out of work has been the consequence since the first minimum wage in New Zealand in the late 1800s.

    “And in volume 2, page 33, speaking of New Zealand, " wages in the colony fell generally between 1879 and 1895. In 1889 the minimum amount of wages to be paid in industries was fixed by law. As a result the old and slow workers in the clothing and underclothing trades were all discharged and starved or became paupers," (vol. 2, page 64). ”

    The references in the preceding is to: “ State Experiments in Australia and New Zealand,” written by William P. Reeves

    I looked up the reference. New Zealand and Australia during their trial of socialism during the period set up industry boards that set the minimum wage. Those old and slow workers were eventually given a license to work at below the minimum wage which returned them to work.

    Sadly, the same industry boards were implemented by FDR as part of his "raw", I mean, New Deal.

    July 24, 2015, 7:13 pm

  7. Joe_Da:

    First - it is refreshing that a liberal will acknowledge the effect is more complicated that just sound bites.

    The card krueger study of NJ / PA fast food restaurants when NJ increased the state minimum wage in 1992 from 4.25 to 5.05 is the case frequently cited by Krugman as proof that there is positive employment rate effect when the minimum wage is raised.

    http://www.nber.org/papers/w4509

    The Card Krueger study is an excellent example of how you can draw incorrect conclusions based on incomplete or misinterpreted data.

    The first item to note is the stores can be divided into 3 groups.
    1) the PA stores that the minimum wage stayed at 4.25
    2) the NJ stores that had to raise the minimum wage to 5.05
    3) the NJ stores that were already paying the higher minimum wage prior to the required change date.

    Employment rates and hours worked remained fairly constant before and after the rate change for the PA stores and the NJ that were already paying the higher minimum wage. Employment rates and hours worked for the NJ stores that had to raise their minimum wage increased after the change. This would lead to the conclusion that raising the minimum wage is a boost to the employment picture.

    Typical krugman intentionally fails to acknowledge the what was missing in data collection.
    1) No information was obtained on sales volume before and after. (at least not presented in the study to any depth.
    2) no information was obtained and/or presented as to whether the stores were understaffed or overstaffed prior to the change date. and if overstaffed and/or understaffed was any determination as to why.

    These two shortcomings are so obvious, it embarassing that any competent economist would present the study as valid. (at least not without acknowledging the limits of the study.

    July 25, 2015, 1:13 pm

  8. terrence:

    These high "minimum" wages also make robots even more attractive - I read somewhere that ONE robot can make a LOT of hamburgers in one minute; the higher the minimum, the greater the payoff from using robots - there goes a lot of minimum wage jobs for teen agers.

    Here is a link to an interesting article
    http://www.aei.org/publication/study-the-impact-of-robots-on-workers-and-economic-growth/

    July 25, 2015, 5:11 pm

  9. marque2:

    In many cases the folks getting the minimum wage don't even want it, and are now asking their bosses to cut back hours so that they can continue to get their welfare payments. Makes it easy for the boss to figure out whose hours to cut back, I guess.

    http://m.kirotv.com/news/news/nonprofit-worker-reduced-hours-requested-stay-subs/nmYYS/

    July 26, 2015, 9:11 am

  10. marque2:

    There is a fine line, where your labor is slavery. I can see some regulations against this - people can be coerced to work for low wages for many reasons. But in general I agree with your sentiment.

    July 26, 2015, 9:13 am

  11. marque2:

    But what happens when we have the great machine revolt!

    July 26, 2015, 9:14 am

  12. SamWah:

    Ve shall only consssssider positif outcomess, und not adressss bad vunsss!

    July 26, 2015, 9:21 pm

  13. joshv:

    How about we implement a Federal guaranteed minimum income. After that, there's no need to "protect the worker" right? Everybody will at least be guaranteed enough money for a basic living, so whatever wage an employer and an employee want to set should be ok.

    July 27, 2015, 4:34 am

  14. Matthew Slyfield:

    "Everybody will at least be guaranteed enough money for a basic living"

    A basic living where? The cost of a basic living varies significantly from state to state and even from county to county.

    July 27, 2015, 6:10 am

  15. OldNHMan:

    "What gives a government the right to set my price?"

    That's a question right out of Atlas Shrugged. Your only true property is the value of your labor. That value should be set by you and those wishing to purchase your labor by negotiation, not by a government that has no real understanding of the value of labor (and never has). It does not take into account the quality of your labor, something that also defines the value of that same labor. (If you provide better quality and quantity than another fellow doing the same labor, isn't yours more valuable than his?)

    July 27, 2015, 11:04 am

  24. marque2:

    Milton Friedman called this the negative income tax.

    April 24, 2018, 3:49 pm

  25. Matthew Slyfield:

    Calling it a negative income tax doesn't in any way address the issue that the amount of money for a basic living is not the same everywhere in the country.

    April 24, 2018, 5:12 pm