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The Minimum Wage Debate: Takeaways

September 18, 2014 09:00 AM

For the last two weeks, a debate on raising the minimum wage has been waged between the author 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, and Joseph J. Sabia, Associate Professor of Economics at San Diego State University. Their points and counterpoints can be found in full detail within the Fall 2014 issue of the Journal of Policy Analysis and Management. For Shierholz and Sabia, this debate is a continuation of a panel discussion both participated in earlier this year, which focused on the minimum wage and the earned income tax credit (EITC).

“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,” said Sabia early on in the discussion. “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.”

Shierholz countered, saying that “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.” She contends that the minimum wage isn’t an anti-poverty tool, but a basic labor standard.

"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,” said Sabia in his counterargument. “And among the few that will be affected, many will lose due to minimum wage-induced job losses and hours reductions."

"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," states Bernstein and Shierholz in their counterpoint. "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."

Sabia concluded that the peer-reviewed, published science on the poverty effects of minimum wages is overwhelming, confirmed in the new estimates he presents in both his positional paper and counterpoint. “While one’s political ideology is a legitimate rationale to support or oppose a public policy, policymakers and fair-minded individuals should be willing to have their positions moved by scientific evidence.” He emphasized that the working poor deserve better than symbolic promises and ideological arguments about market excesses. “What they deserve are pro-work public policies that will help lift them out of poverty.”

“The federal minimum wage is currently more than 25 percent below its real value in the late 1960s, so it has eroded dramatically,” says Shierholz. “When labor standards erode, both low and moderate income workers see downward pressure on wages.” To focus on its antipoverty impact, state the authors, is to both choose an arbitrary line-in-the-sand and miss the policy's utility for non-poor, working families who still need the extra money. “Even more importantly, our support for moderate increases in the wage floor is based on its necessity as a labor standard, analogous to those that prohibit child labor, pay overtime, enforce correct worker classification, enforce safety regulations, and so on.”

The debate about the minimum wage will continue to rage through the halls of Congress. What is certain is that the economics of the issue are complicated, and it’s far from obvious what an increase, if passed, would accomplish. Several policies have been put forward as alternatives. With the wealth of information available on both sides of the issue, the biggest question now is what path the government will follow to resolve it.


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