Ezra Klein: Raise the Minimum Wage. Raise It Now.

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June 14, 2006

Raise the Minimum Wage. Raise It Now.

I'm getting rather tired of this argument. William Niskanen, arguing against a federal boost to the minimum wage, trots out the same old canards about wage increases decimating jobs. And yes, if you jack the wage up to $16 an hour, jobs will be lost. But up to $7 over a period of years? The evidence doesn't back him up. Hell, it's so easy to check that you folks can play along at home. Just compare this list of state minimum wage laws with this rundown of state unemployment rates. The lowest unemployment rate in the country is Hawaii's 2.8 percent, which somehow survives their $6.75 minimum wage. Second lowest? Florida, with a luxurious $6.40 per hour. Vermont, resting comfortably at #5, has a minimum wage of $7.40! And the very highest unemployment in the nation? Mississippi, with no minimum wage laws at all.

And this is the way of it. The minimum wage, of course, doesn't decide employment on its own. Michigan has a decent wage floor, but the destruction of their manufacturing sector left them with a high unemployment rate. And Mississippi's problems aren't related solely to their laughably low labor standards. But any attempt to correlate minimum wage increases with joblessness falls on its face. When Clinton raised the wage in the mid-90's, low income employment skyrocketed. Some catastrophe. And we can take this as far back as folks want. Check this graph, showing the real value of the minimum wage (now at a historical low). Its peak was 1968. The unemployment rate in 68? A brilliantly low 3.5 percent.

As Brad DeLong would say: Raise the minimum wage. Raise it now.

Cross-posted at Tapped.

June 14, 2006 | Permalink

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Comments

It's $7.15 an hour here in Washington. At my job, we've created a new position and hired two people to do it.
Thank God, it used to be part of my job.

Posted by: merlallen | Jun 14, 2006 12:48:44 PM

Congress has given themselves another raise. Isn't that good enough?

Posted by: Shakespeare's Sister | Jun 14, 2006 12:50:27 PM

*sigh*

Posted by: fiat lux | Jun 14, 2006 12:54:01 PM

I agree with you here. Congress has raised their own salaries something like 5 or 6 times in the last 8 years and has not raised the minimum wage 1 cent.

Go figure.

Posted by: Tony | Jun 14, 2006 12:58:21 PM

I wonder if there is a way to craft the argument to appeal to conservatives. Maybe the way to frame it is to suggest that if we pay a livable minimum wage, employees will then have greater motivation to perform better and provide better service, because they will have something to lose. Right now, who cares if you screw up at your min wage job...you can always get another min wage job.

But I go to a grocery store with stellar service, and they start employees at $7.25 per hour. And they have much lower turnover than all the other grocery stores in the area. Maybe because those employees care about their jobs, because if they lost them, they couldn't get the same compensation at a different grocery store.

Posted by: maurinsky | Jun 14, 2006 12:59:25 PM

I figure it's part of a scam to make welfare bums a self-fulfilling prophecy. Make a person poorer by working honestly than if he milks whatever support he can out of public services and takes an income from under the table endeavours.

Posted by: opit | Jun 14, 2006 1:06:06 PM

And the very highest unemployment in the nation? Mississippi, with no minimum wage laws at all.

And this has nothing to do with the fact that 37% of Mississippi's population is black, many of whom are poor, and who have suffered through a long history of segregation and discrimination. Nope, it's all because of the minimum wage that Mississippi is different from Vermont.

Posted by: Anono | Jun 14, 2006 1:24:08 PM

But any attempt to correlate minimum wage increases with joblessness falls on its face.

And any college graduate should know that correlations are meaningless here. Maybe Vermont is able to have a higher minimum wage because it's a richer and whiter state. That doesn't indicate anything about where Mississippi's employment rate would go if they adopted a 7-dollar minimum wage. It might well go even further down. That's the relevant point, not spurious correlations.

Posted by: Anono | Jun 14, 2006 1:26:10 PM

Which is, uh, what I wrote.

Posted by: Ezra | Jun 14, 2006 1:30:22 PM

Anono you make some very important points but I think what Ezra is really saying is that the anti-wage hikers simply don't have the data on their side for the argument they try to make.

Posted by: sprocket | Jun 14, 2006 1:33:41 PM

Correlation is not causation. But non-correlation is really, REALLY far from causation. He's not saying raising minimum wages will magically improve low-income employment ; he's saying that the minimum wage and low-income employment are merely unrelated.

Posted by: Kylroy | Jun 14, 2006 1:58:09 PM

Would it satisfy some anti increase types if the increases only applied if unemployment was below a certain level in an area?

Japan has minimum wages that depend on the area. Very roughly something like $10 an hour in big cities and perhaps $7 an hour in country areas.

Posted by: Ronald Brak | Jun 14, 2006 2:16:47 PM

Next you will be telling us that tax cuts don't always increase revenue, or that Saddam wasn't actively involved with al-Qaeda.

Who are you arguing with, and why? To what purpose?

Posted by: bob mcmanus | Jun 14, 2006 3:48:09 PM

Which is, uh, what I wrote.

Really? Where?

You don't get it: Ezra hasn't demonstrated "non-correlation" either. You can't demonstrate "non-correlation" just by saying, "Look over here, a wealthy white state has a high minimum wage and low unemployment, and 1500 miles away, a state with a lot of poor blacks has no minimum wage and high unemployment." That doesn't prove what you call "non-correlation," because there are obviously so many other factors that differ as between VT and MS.

If you really wanted to demonstrate "non-correlation," you would have to either 1) control for those other factors, or else 2) look at what happens when a single state either adopts or gets rid of minimum wage. I.e., if you looked just at employment rates in Vermont, and you found that when Vermont adopted a minimum wage the unemployment rate stayed the same, THEN you would be on the right track to show non-correlation. (You'd still have to take into account other factors, such as macro-changes in the economy, etc.)

But Ezra's post is just odd. It's like trying to disprove the effectiveness of welfare programs by saying, "Welfare programs don't reduce poverty. Why, if you look at the Upper West Side, they have low welfare spending and also low poverty rates, but if you look at southern Texas, they have high welfare spending and high poverty rates!" And you're coming to his defense by saying, "Well, at least there's a non-correlation between welfare programs and lowering the poverty rate."

The obvious response is the same as here: There's no correlation or non-correlation yet on offer. All you've shown is that rich white people can afford to have moderately higher minimum wages than impoverished minorities. This proves absolutely nothing about what would happen if Mississippi adopted a high minimum wage (unemployment might go even higher), or if Vermont got rid of its minimum wage (unemployment might go even lower).

Posted by: Anono | Jun 14, 2006 3:51:54 PM

It's doing nothing of the kind. And, by the way, Florida and Hawaii(!) aren't exactly economies populated solely by rich white people. My post has a small and simple point: it is obviously untrue that minimum wage increases are mutually exclusive with high employment economies. It is unlikely that they exert anything more than a minor impact on employment at all. The right's implication is either straight incorrect (if you believe Card/Krueger) or vastly overblown. Given that, increases in the wage standard should be passed.

Posted by: Ezra | Jun 14, 2006 4:16:56 PM

Anono, next time do a lit review before you pen your self-satisfied, four-paragraph screeds. If nothing else, you need to explain Krueger's 1994 New Jersey-vs-nearby-Pennsylvania study of fast-food employment after NJ but not PA raised its minimum by a small amount.

Having skimmed that one when it came out and just performed a thirty-second lit review, I can say a few things safely: one, if there is an effect, it is small; two, there may not be an effect at the wage and policy levels involved; three, you like to declaim from on high without knowing the seminal, counterintuitive studies.

It isn't as if I am a practitioner. Those results were in the papers.

Posted by: wcw | Jun 14, 2006 4:51:37 PM

And so should the minimum wage apply to interns, i.e., no more unpaid interns? And shouldn't anyone who works for a company that hires unpaid interns quit in disgust at the immorality of such a company?

And if unpaid internship is ok, then why can't, say, Wal-Mart or Joe's Shoe Repair pay its employees whatever it damn well pleases?

Posted by: ostap | Jun 14, 2006 4:57:16 PM

"This proves absolutely nothing about what would happen if Mississippi adopted a high minimum wage (unemployment might go even higher)..."

Okay, is Florida a valid comparison? Ezra outright acknowledges that minimum wages do not drive prosperity. But neither do they crush it, as some economists are determined to prove.

"It's like trying to disprove the effectiveness of welfare programs by saying, Welfare programs don't reduce poverty."

A program designed to meet a specific need is employed more in an area that has more people with that need; same way FEMA is more important to Louisiana and California than Iowa. This compares to a worker protection that may or may not affect employment levels how? The goal of minimum wage laws is not expressly to increase employment; we're looking at a side effect, if an important one.

"There's no correlation or non-correlation yet on offer."

What it boils down to is this: if you are stating that there is a correlation between to things (here, low-income employment and minimum wage), the burden of proof is on those who state the correlation exists. The data shows the correlation between these two is weak at best, nonexistent at worst, regardless of how much sense it would make for them to be strongly connected.

Posted by: Kylroy | Jun 14, 2006 5:43:48 PM

"if you are stating that there is a correlation between to things (here, low-income employment and minimum wage), the burden of proof is on those who state the correlation exists." Where is that rule written? Seems like a silly rule to me.

"The data shows the correlation between these two is weak at best, nonexistent at worst." There is so much noise in the relevant data, I don't trust any econometric exercise by proponents or opponents to prove anything. Anyone who trusts any studies on the effects of minimum wages on employment should have his head examined. And that goes double for anyone who points to simple correlations, or lack thereof, between state minimum wages and state unemployment rates.

Posted by: ostap | Jun 14, 2006 6:01:15 PM

The problem, then, is of course that there are not enough poor people per minimum wage job. If you want proper subservience from the serving classes, what you want is desperation and fear. That's all they understand -- it's no good treating them well.

Posted by: paperwight | Jun 14, 2006 6:03:55 PM

Well, you cherry pick a known liberal primadonna economist, but what is the school of thought amongst most economists?

Is there an accepted answer on this with them? Is raising the minimum wage harmless with no consequences whatsoever as the hard left would have us believe or are there things that really happen?

Any real consensus amongst the regular working economists?

Posted by: Fred Jones. | Jun 14, 2006 6:06:40 PM

Start your lit review with Krueger and responses and move out from there. As they say in my field, do your own due diligence. If you must take a shortcut, simply believe the two things I told you: one, if there is an effect, it is small; two, there may not be an effect at the wage and policy levels involved.

Not that it matters, but we on the "hard left" are more into guaranteed incomes than mere, pissant increases in the minimum wage. The latter is a classic establishmentarian's moderate policy prescription. If you think those folks are hard left, I have a few communitarian anarchists you might enjoy meeting.

Posted by: wcw | Jun 14, 2006 7:24:02 PM

And index it to productivity! I would love for this notion - that the minimum wage should automatically increase in line productivity - to achieve meme status among lefty wonks, and so I'm trying to mention it in comments when the minimum wage comes up as an issue. So far no takers, but its a very good idea and avoids any of the pitfalls assiated with 1) not indexing the minimum wage (which is where we are now, typically going 7 or 8 years with no increase) and 2) indexing it to consumer prices or some other inflation measure (this is more arcane, but in theory such indexation could give rise to a wage-price spiral; a similar policy of automatic wage indexation led to accelerating inflation in Italy in the 1970's).

Posted by: Rich C | Jun 14, 2006 8:30:52 PM

Not enough people with not enough purchasing power to have an indexed minimum wage *by itself* gin up an inflationary spiral a la Argentina, Italy, Israel, etc.

Those were accelerated by nearly economy-wide indexing -- nearly all wages & pensions had increases hard-wired in. They were moving the whole income pyramid north, not just raising the floor.

A rising tide lifts all boats -- an increase in the minimum wage is like having a rising tide for only a few hours a day.

Posted by: Davis X. Machina | Jun 14, 2006 9:33:24 PM

I think Brad DeLong stated that studies on the effect minimum wage had on employment were that they were modest to negligable as long as the minimum wage increase was modest.

Posted by: Dustin | Jun 15, 2006 8:56:03 AM

Hey, when it's all said and done, it's a political move that will raise wages for very few since few are actually at the minimum wage in the first place.

Posted by: Fred Jones. | Jun 15, 2006 10:37:57 AM

Amazing how this whole obscene discourse fails to even address the truly poignant question at hand. Namely, why raise the minimum wage? The answer is obvious to anyone willing to objectively look at it and painfully obvious to those who must try and live off it. Minimum wage earners, particularly those trying to raise children, live in abject poverty with no chance of upward mobility. I see our legislators recently awarded themselves yet another ahem, "cost of living adjustment" (what, did country club dues go up?)but refuse to mandate a living wage for those struggling to get by on $5.15/hr or less? The whole things morally repugnant. Where's your humanity people?

Posted by: Ryan Patterson | Jun 15, 2006 11:51:00 AM

Ryan,
If you made your appeal to a conservative, they might agree that the minimum wage is not enough to live on. But they would claim you would be doing more harm than good for the folks you want to help by reducing the number of jobs available and by increaing inflation. So (according to our mythical conservative) the net effect would be some working poor losing what little income they had and others getting a small pay increase which is eaten up by higher costs as businesses pass on their higher labor costs through higher prices. Or they might just complain that the poor weren't poor enough these days and didn't amuse the well heeled by starving to death every now and again. Here's a sample http://soapbox.townhall.com/opinion/columns/pauljacob/2006/02/12/186098.html

What Ezra is trying to do is deal with one of the arguments against raising the minimum wage, that is, that a minimum wage hike is counterproductive because it causes job cuts. He is not covering every argument for or against the minimum wage, just this one.

Posted by: DonRobbie | Jun 18, 2006 2:53:14 PM

Isn't it a simple matter of social justice for the common good to raise the minimum wage? Or am I just a dumb Catholic? So far as the opinions of conservatives, I have never known any of them who had a social conscience. Why should we care what they think? We know already they are stingy enough to step across the bodies of starving children on their way into church.

Posted by: Jim O'Leary | Jun 18, 2006 9:43:25 PM

Here's one factor I've been pondering; companies often pay 5-10 cents more than the minimum wage so they can brag about how they don't pay the minimum wage. I wonder if including those who make within 5-10% of the minimum wage would be more revealing.

Posted by: vman | Jun 20, 2006 9:06:57 AM

What I see is the same tired BS arguements from the likes of Cato and the Heritage Foundation. I don't think there's any compelling proof that shows correlation between increases in minimum wage and low wage unemployment. What pisses me off is to hear Senators lie about it.

Posted by: Sonny | Jun 22, 2006 1:42:54 PM

This article references information that is insignificant to the argument at hand. If you wanted to chart the impact of minimum wage on unemployment this requires a Before and after approach. By comparing states - you are comparing apples to oranges. Hawaii may have higher wage rates / lower unemployment then another state but there could be different economy drivers that keep people employed that is not available in mississippi. . .

Here is a better analysis.
http://www.cato.org/pubs/regulation/reg18n1c.html

Posted by: chris | Jun 27, 2006 9:42:29 AM

Part 2

If a argument is nonsense - I am interested in the statistical argument for it. Not the "they are BS" or "they lie". If you have any long run minimum wage vs unemployment statistics - i'm all ears.

Otherwise I say we should get rid of the minimum wage, and let market forces work.

Posted by: chris | Jun 27, 2006 9:44:36 AM

Congress voting themselves a pay raise with my money is one thing. Congress voting someone else a pay raise with someone else's money is entirely different. They are unrelated. Needless to say, requiring someone to pay a certain amount means nothing if you don't require them to actually do it. Yet, this would be illegal and reveals the true socialist nature of the law. It is a bs law that only gets in the way of people making their own decisions about employment and labour.

Posted by: JB | Jan 10, 2007 7:05:13 PM

You know, they need to raise the wages for the simple fact NO ONE CAN MAKE IT ON THE WAGES WE HAVE NOW!!! If it was raised just $2.00 it would make a difference.Ever since KATRINA every thing here has went sky high mostly the cost of living. Do they think that we can survive making $300 a week paying a car note, a mortgage, utilitys,put food on the table for our children, gas to get back and forth to work, insurance dont even get me started on that. We have to get 3 and 4 credit cards with high intrest just to make it. Anyway just had to get it off my chest, congress dont care as long as they are paid.

Posted by: tammy | Jul 21, 2007 1:57:01 AM

If the empirical data do indeed show that raises to the minimum wage have not had a significant impact on employment (which is apparently highly debatable, though I'm no economist), then the most interesting question should be "why?" Why do basic economic principles fail? Theory predicts that all else being equal, as the cost of labor increases, demand will fall. Before we enact policy changes, shouldn't we have some sort of predictive theory about their effects?

In real-world studies, empirical data alone are always dubious. We can never be sure that all confounding variables were considered. This is why scientists do experiments in laboratories. I feel that unless accepted models can be modified or new plausible models can be proposed that account for the failure of the supply and demand relationship, our only choice in explaining the observed data is to posit the action of some confounding variable. For example, in simple plots of employment against minimum wage, correlated rises in employment and wage can easily be explained by a generally improving economy.

Posted by: Moosashi | Aug 13, 2007 1:52:29 PM

Posted by: Moosashi | Aug 13, 2007 3:09:51 PM

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