Minimum wage hike has more gains than losses, research shows

Bill Knight column for Mon., Tues. or Wed., Aug. 8, 9 or 10

The minimum wage is going up in isolated places, such as California, Minnesota, New York City, Seattle and Washington, D.C. However, many elected Republicans and business lobbies continue to argue against helping low-wage workers, and they do so despite a body of evidence that’s shown its positive effects.

Usually, the anti- crowd claims that businesses mandated to pay more will cut jobs to make up for higher costs. But, at most, it’s a trade-off, according to the nonpartisan Congressional Budget Office, which in its 2014 report “The Effects of a Minimum-Wage Increase on Employment and Family Income” showed that raising it from the current U.S. minimum wage of $7.25 to $9, for example, could result in a loss of some 100,000 jobs, but about 7.6 million low-wage workers would see a boost in their weekly earnings.

Indeed, an increase in the federal minimum wage would likely have broad effects, with some studies saying it could echo across the economy, raising the pay of almost 30 percent of U.S. workers.

Who would those workers be? According to the U.S. Bureau of Labor Statistics, most minimum-wage workers are between 16 and 24 years old, women, African-American, single, part-time employees, or have less than a college education – or some of each demographic.

In 2015, the BLS said, “Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less. Among employed teenagers (ages 16 to 19) paid by the hour, about 11 percent earned the minimum wage or less, compared with about 2 percent of workers age 25 and older.”

Dale Belman of Michigan State University and Paul Wolfson of the Tuck School of Business at Dartmouth in their 2014 book “What Does the Minimum Wage Do?” – which draws on about 200 papers – write, “Moderate increases in the minimum wage are a useful means of raising wages in the lower part of the wage distribution that has little or no effect on employment and hours. This is what one seeks in a policy tool, solid benefits with small costs.”

Ground-breaking research into the question occurred in 1993 in the 26-page paper “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania” by Princeton’s Alan Krueger (now Chairman of the White House Council of Economic Advisers) and David Card, published in American Economic Review. Their two main findings were that “prices of fast-food meals increased in New Jersey relative to Pennsylvania, suggesting that much of the burden of the minimum-wage rise was passed on to consumers,” and data showed “no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state.”

More recently, 2004’s “The Effect of Minimum Wage on Prices” from the University of Leicester analyzed a variety of research on the subject and found that most employers respond to minimum-wage hikes not by cutting jobs or production but by raising prices modestly. For instance, they reported, a 10-percent increase in the minimum wage would increase food prices by no more than 4 percent and overall prices by no more than 0.4 percent, obviously far less than the wage increase.

Elsewhere, respected research supporting the widespread benefits of raising the minimum wage demonstrated that:

* Consequences of a minimum-wage increase were “strong earnings effects and no employment effects of minimum-wage increases.” (Arindrajit Dube, T. William Lester and Michael Reich in Review of Economics and Statistics in 2010.)

* “The minimum wage is a useful tool if the government values redistribution toward low-wage workers, and this remains true in the presence of optimal nonlinear taxes/transfers,” conceding that in some labor-market conditions, it could be better for the government to subsidize low-wage workers and keep the minimum wage relatively low. (David Lee at Princeton and Emmanuel Saez at UC-Berkeley in The Journal of Public Economics in 2012

* Workers at McDonalds and other big restaurant chains have to rely on government aid programs much more than other workers, meaning taxpayers underwrite employers’ wage scale. So raising the minimum wage could shift some of the burden back to companies, which labor economists regard as only fair. (In 2013’s “Fast Food, Poverty Wages: The Public Cost of Low-wage Jobs in the Fast-Food Industry,” by six researchers from the University of Illinois at Urbana-Champaign and the University of California at Berkeley.)

[PICTURED: Graphic from onepercenttakers.com.]