Point/Counterpoint: Minimum Wage Policy
September 3, 2014 10:00 AM
In the Fall issue of the Journal of Policy Analysis and Management, the current “hot button” topic of minimum wage is under debate. Given the current controversy of the consequences of a minimum wage increase, as lately outlined in the February 2014 Congressional Budget Office report The Effects of a Minimum-Wage Increase on Employment and Family Income, two questions must be asked: Would minimum wage legislation diminish poverty? Are there efficient alternatives to this legislation?
Participating in this debate is Joseph J. Sabia, Associate Professor of Economics at San Diego State University on the one side and the team of 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. Shierholz and Sabia participated in an American Enterprise Institute forum debating minimum wage and earned income tax credit (EITC) in February 2014, shortly after the CBO released their findings.
Researching employment, earnings, and poverty effects of minimum wage for more than a decade, Sabia cites both Cornell University’s Richard V. Burkhauser and the University of California-Irvine’s David Neumark as key influencers. “While economists often study the unintended consequences of public policies, the minimum wage is a stark example of a public policy where there is very little connection between proponents’ stated policy objectives and what the policy actually does,” says Sabia. “As empirically-based scientists, we must judge the success of a policy not by what we might hope it will achieve, but by its consequences.”
Sabia states in his initial position paper for this issue’s Point/Counterpoint series, Minimum Wages: An Antiquated and Ineffective Antipoverty Tool, that the empirical evidence is clear: minimum wages increases fail to reduce poverty and the economic well-being of the working poor, and hurt many of the vulnerable low-skilled workers that proponents wish to help. “Advocates of minimum wage increases have done a marvelous job painting a vivid portrait of the typical minimum wage worker as a poor single mother struggling to make ends meet and lift her family out of poverty,” says Sabia. “It is a powerful image. But it just ain’t so.”
Shierholz, speaking for both herself and co-author Bernstein, disagrees in principle in their position paper, The Minimum Wage: A Crucial Labor Standard That Is Well Targeted to Low- and Moderate-Income Households. Whether minimum wage reduces poverty sounds better than it actually is: in one aspect, it’s trivial. If you’re a low-income person working at the current minimum wage, a higher minimum automatically makes you better off—assuming no reduction in hours or employment. “One key thing that people on all sides of this debate often get wrong is thinking of the minimum wage as simply a tool for fighting poverty,” she says. “The minimum wage isn’t primarily an anti-poverty tool, it is a basic labor standard.”
Interested in looking more at the question of if the public’s instincts are right, Shierholz approached her research with the following question in mind—will increasing the minimum wage help low-wage workers or hurt those it is trying to help? “We found that the minimum wage would raise the wages of low-wage workers, the vast majority of whom live in low and moderate income households, and would have little to no significant effect on employment levels,” she says. “And, though not its primary function, the minimum wage is indeed an effective tool for fighting poverty, child poverty in particular.” When labor standards erode, both low and moderate income workers see downward pressure on wages. “So partially restoring the minimum wage—which is what raising it to $10.10 by 2016 would do—would mean both low and moderate income workers would see gains,” says Shierholz. "If the minimum wage were increased to $10.10, 18.7 percent of all children in the U.S. would see at least one parent get a raise.”
Next week: Counterpoints
Joseph J. Sabia is an Associate Professor of Economics and Director of Graduate Studies for the Department of Economics at San Diego State University (SDSU). He is a labor and health economist whose research focuses on the poverty effects of minimum wages, the economics of health behaviors, and the social costs of the Global War on Terrorism. Sabia has testified before the U.S. Senate Finance Committee and the New York City Council on minimum wage policy. His scholarship has appeared in such peer-reviewed economics and public policy journals as the Journal of Human Resources, Industrial and Labor Relations Review, the Journal of Health Economics, the American Economic Review, the Journal of Policy Analysis & Management, and the Southern Economic Journal. Prior to his appointment at SDSU, Sabia held faculty appointments at the University of Georgia, American University, and the United States Military Academy at West Point.
Heidi Shierholz is Chief Economist at the U.S. Department of Labor. She has researched, written, and spoken widely on the economy and economic policy as it affects middle- and low-income families, especially in regards to employment, unemployment, labor force participation, wages and compensation, income and wealth inequality, young workers, unemployment insurance, and the minimum wage. Shierholz is a coauthor of The State of Working America, 12th Edition, is a frequent contributor to broadcast and radio news outlets, including ABC, CBS, NBC, CNN and NPR, and is regularly quoted in print and online media outlets, including the New York Times, Washington Post, and the Huffington Post. She has repeatedly been called to testify in Congress on labor market issues. She joined EPI in 2007, after having worked as an Assistant Professor of Economics at the University of Toronto. Shierholz received a Ph.D. in Economics from the University of Michigan and a M.S. in Statistics from Iowa State University.