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Counterpoint: Minimum Wage Policy

September 10, 2014 10:00 AM

As Congress returns to its duties this fall, one of the current debates they'll continue to address is that of raising the minimum wage. The debate was sparked anew by a February 2014 Congressional Budget Office report, The Effects of a Minimum-Wage Increase on Employment and Family Income. From this came two important questions: Would minimum wage legislation diminsh poverty? Are there other efficient alternatives to such legislation?

The next issue of the Journal of Policy Analysis and Management contains an interesting discussion on minimum wage in its popular Point/Counterpoint section. On one side is Joseph J. Sabia, Associate Professor of Economics at San Diego State University, and the other features co-authors Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities and former Chief Economist to Vice President Joseph R. Biden Jr., and Heidi Shierholz, Chief Economist at the U.S. Department of Labor.

Both sides presented their initial positions in last week's feature; this week, they address their opponents' positions. "The vast majority of workers in the United States who stand to be directly affected by the newly proposed Federal minimum wage increase to $10.10 per hour are not single women with children, nor are they heads of household, nor are they poor," states Sabia. "The vast majority of workers affected by a $10.10 minimum wage—over 85 percent—live in non-poor households. The poor will not, in the main, benefit from a higher minimum wage. And among the few that will be affected, many will lose due to minimum wage-induced job losses and hours reductions."

Shierholz does partially agree with Sabia on this point. "Increases in the minimum wage tend to be enormously popular, with, for example, the majority of both Democrats and Republicans supporting an increase in the minimum wage to $10.10 in poll after poll," she says. But, she continues, is the public's instincts on this issue correct? "One thing that continually surprises people who aren’t steeped in these numbers is how few people who would see a raise if the minimum wage were increased actually fit the stereotype of the minimum wage worker as a teenager working an afterschool or summer job for extra spending money," she says. "The average age of workers who would see a raise if the minimum wage were increased to $10.10 is 35, and on average, workers who would see a raise earn half of their family’s total income."

From here, however, the two sides diverge. Sabia's counterpoint, The Minimum Wage: No Feature, All Bugs, addresses the five main points presented in Berstein and Shierholz's position paper supporting the proposed minimum wage. "Bernstein and Shierholz argue that even if one accepts the overwhelming empirical evidence that minimum wages are ineffective at reducing poverty, the minimum wage is still a necessary labor standard to protect workers against the 'excesses of the market,'" says Sabia. "If they mean an unfair market-driven distribution of income, there are alterative policies to the minimum wage—such as a robust negative income tax program—that can much more efficiently and effectively redistribute income to the poor and near-poor."

Sabia does agree that negative income tax programs such as the Earned Income Tax Credit (EITC) can be far more effective in efficiently delivering income to low-skilled, low-income households without resulting in adverse labor demand effects that undermine poverty-alleviating effects. "Congressman Paul Ryan’s recent proposal to expand the EITC to childless adults is a forward-looking, pro-work, anti-poverty policy that Democrats and Republicans should support," he says. "The EITC is a policy that can actually deliver assistance to the working poor in contrast to the minimum wage, which can only provide them symbolic support."

"The danger in these minimum-wage debates is that opponents tend to quickly hunker down behind the analysis or literature that supports them and lob grenades at the other team's regressions," says Bernstein and Shierholz in their counterpoint, A Response to Joseph J. Sabia. "A key point regarding the employment impacts of minimum wage increases is that the strong consensus is that the elasticity hovers close to zero, whatever the sign," says Shierholz. "People on both sides of the debate agree that many more low-wage workers benefit from a minimum wage increase than are hurt by it."

Bernstein and Shierholz contend that a careful read of CBO's 2014 findings leads to a disagreement with Sabia's conclusions that "policymakers wishing to fight poverty should turn away from failed and antiquated policies like the minimum wage." They cite CBO's prediction that 900,000 persons would be lifted out of poverty by the legislation to raise and index the federal minimum to $10.10, as well as another recent study that implies 2.3 million.

"In his own work, Sabia finds the strongest evidence of consistently negative poverty elasticities when examining the effect of minimum-wage increases on single female heads of household with children under age 18," says Shierholz. "But he makes the arguably strange choice to exclude the children of these women in his investigation of whether increases in the minimum wage reduce poverty." By exluding children under the age of 16, they contend that Sabia misses a crucial group that stands to gain from the minimum wage increase: poor children.

Next week: takeaways


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