Does raising the minimum wage help or hurt? Debate is endless
Aug. 12--President Harry S Truman quipped that he wanted to find a one-handed economist, because all his economic advisers always gave him "on-the-one-hand, on-the-other-hand" advice.
That brings to mind the endless debates over the minimum wage -- laws that require employers to pay at least that much to their lowest-paid employees. Almost all U.S. states set a minimum wage -- it's currently $8.90 an hour in Michigan -- and most industrialized nations do, too.
But economists have long feuded over whether the minimum wage helps or hurts. And those debates are heating up once again as fast-food workers demand a minimum wage of $15 an hour -- a demand backed by many in the more progressive wing of our politics.
I've concluded that it does no good to cite this or that study, like a recent one from Seattle that showed a negative impact on employment when the minimum wage rises. For at least 25 years, economists have churned out study after study, some finding raising the minimum wage has little or no impact on employment levels, while others finding that it's a job killer, especially for youth in first jobs.
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Charles Ballard, professor of economics at Michigan State University, says it's important to keep the dosage in mind. Jumping all the way to $15 an hour might be too much, but adding another dollar or two to that $8.90 minimum in Michigan probably would do little harm and perhaps do some good.
That nuanced view, in fact, has turned up in some of the studies over the years. Some economists argue that raising the minimum wage lifts some workers out of poverty, brings more workers off the sidelines back into the labor force, and has other positive affects that offset any job losses.
For Ballard, it comes down to how big an increase is in the offing.
"If a proposal for a $15 minimum wage were on the ballot, I would vote no," Ballard told me. "On the other hand, I would vote in favor of $11, and maybe a little more than that."
Part of the failure to reach consensus on the impact of the minimum wage lies in the difficulty of netting out the impact of the minimum wage from all the other market forces that affect employment levels.
When Henry Ford created the $5 day for his factory workers in 1914, he doubled his workers' pay. Yet within a year, Ford found that his overall employment costs had actually decreased, since the higher wage reduced turnover and absenteeism, which in turn cut training and recruiting costs and created a more loyal workforce.
Economists do tend to agree on one point -- if the goal is to lift poor people out of poverty, there are better ways than raising the minimum wage.Try increasing the earned income tax credit, which is directly aimed at poverty-level workers, while the minimum wage may touch teens from both poor and rich families.
Then, too, increasing the collective bargaining power of labor unions might do as much or more to fight poverty as raising the minimum wage.
But here's a thought: What if both sides in this debate are right? What if, as conservative economists contend, raising the minimum wage destroys jobs by raising employers' costs? And what if, at the same time, raising the minimum wage does lift millions of low-wage workers out of poverty?
If both are correct -- as I often suspect they are -- then we're talking about balancing priorities. How many teens are we willing to see go jobless in order to lift single moms raising two kids out of poverty?
"That's a really, really hard question to answer," Ballard said. "It can't be answered on the basis of economic analysis alone." Instead it takes us deep into the realm of culture, politics, aspirations, and identity.
Perhaps we can reach two conclusions from this discussion. First, as Ballard says, raising the minimum wage a little isn't that big a deal; raising it a lot creates more complications.
And, second, waiting for yet another economic study or analysis to resolve the debate will get us only so far. For as Truman or some other observer once noted, if you lined up all the economists end to end, they'd point in every direction.
Contact John Gallagher: 313-222-5173 or firstname.lastname@example.org. Follow him on Twitter @jgallagherfreep.