The Minimum Wage

THE MINIMUM WAGE….The Wall Street Journal reports that Democrats are planning to make the minimum wage a centerpiece of their campaign this year:

Democrats aim to make the minimum wage a maximum political problem for Republicans this election year.

The minority party fired the first shot last week, when the House Appropriations Committee broke with its Republican leadership and approved a $2.10-an-hour increase as part of a spending bill for labor, health and education programs. Speaker Dennis Hastert responded by putting the measure on hold ? possibly until after the election.

But Democrats are poised to come back this morning and offer the same wage amendment as part of a second appropriations bill funding science and law-enforcement agencies.

“I gave the Republicans fair notice that we will attach it to anything we can,” said Wisconsin Rep. David Obey, the committee’s ranking Democrat. Sen. Edward Kennedy (D., Mass.) went to the floor of Senate yesterday and proposed to add the same amendment to a pending defense-authorization bill.

Good for them. Republicans should be ashamed of themselves for blocking a minimum wage increase for the past decade, sending it to an all-time postwar low. Anything that makes them squirm over this is a good idea.

There are arguments against raising the minimum wage, of course, and the usual one is an appeal to simple economics: if the price of unskilled labor goes up, then the demand for unskilled labor will go down. Low-wage workers will be laid off and unemployment among the minimum wage population will go up.

This is technically correct, but it delicately avoids saying anything about magnitudes, which is what really matters. Does unemployment go up 5% after increasing the minimum wage a dollar, or does it go up .01%? And are there countervailing factors that affect this, human beings not being pig iron ingots, after all?

This really can’t be settled by an appeal to theory. Empirical studies are what matters, and they mostly seem to show that modest minimum wage increases have either no effect on low-wage employment or else a very tiny effect, most of it centered on teenagers, not adults. A long history of changes to the minimum wage at the state, local, and national level in the United States, for example, gives little reason to think that small increases in the minimum wage have any serious negative impact ? but does suggest that these changes have, in fact, increased the wages of the working poor.

Likewise, Britain introduced a national minimum wage for adults in 1999 and it appears to have had no negative effect on employment at all. On the positive side, however, it has increased the wages of low-skill workers.

At this point, the bulk of the evidence suggests that modest minimum wage increases (a) provide a measurable benefit for poor workers, (b) have little or no impact on employment levels, and (c) are paid for by the customers of low-wage industries, which means the cost is broadly dispersed among all of us.

So, given that the benefits are clear and the harm appears to be minimal or zero, I think it’s now up to minimum wage opponents to make a clear empirical case against raising the minimum wage if they want to be taken seriously. In a perfect world, there might be other policy instruments for helping the poor that work better ? the Earned Income Tax Credit is the usual favorite ? but we don’t live in a perfect world and it’s probably not a good idea to put all our eggs in one basket anyway. As Brad DeLong says:

The right solution, of course, is balance: use the minimum wage as one part of your program of boosting the incomes of the working poor, and use the EITC as the other part. Try not to push either one to the point where its drawbacks (disemployment on the one hand, and administrative error on the other) grow large. Balance things at the margin.

That sounds right to me. I’ll change my mind if minimum wage opponents can point to a serious recent literature review suggesting a consensus that the minimum wage hurts more than it helps, but until then count me as a supporter.