by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The question in a Bloomberg Businessweek headline: “Is a $15 minimum wage too high?”
Writer Peter Coy finds some economists who agree with the correct answer, but not necessarily for the most appropriate reason. Coy’s naysayers tend to focus on the workability of a $15 minimum wage in labor markets with the lowest wages.
There’s no question among economists that the minimum wage represents a trade-off. On one hand, it does lift incomes. On the other, the higher it is, the more marginal workers will be priced out of the market. Those include teenagers seeking their first paid jobs, the poorly educated or handicapped, and people living in areas with chronically low productivity—perhaps because of inadequate investment in the machinery and software that workers need to boost output.
The question, then, is where is the sweet spot? Katharine Abraham, President Bill Clinton’s commissioner of the Bureau of Labor Statistics and later an economic adviser to President Obama, signed the $10.10 letter, but, like Cornell’s Ehrenberg, says she would have said no to the $15 letter. “We have no experience with an increase in the national minimum of that size and I am concerned about what a $15 minimum nationwide would do to employment,” she wrote in an e-mail.
Both Abraham and Ehrenberg argue that the federal minimum should be on the low side, with cities where productivity and living costs are high setting higher minimums as they see fit. Los Angeles, San Francisco, and Seattle are scheduled to go to $15 an hour in the next several years, while Chicago and Kansas City, Mo., are raising their minimums to $13. In July a New York state board recommended a $15 floor for fast-food chains by the end of 2018 in New York City and July 2021 in the rest of the state. High-wage SeaTac, Wash., raised the local floor to $15 in 2014. That squeezed profits at the upscale Cedarbrook Lodge, which nonetheless went ahead with a 63-room expansion.
A good rule is to set the minimum at half the local median wage, says Arindrajit Dube, a University of Massachusetts at Amherst economist and a leading researcher on minimum wages’ impact on jobs. That is “in line with the international average and with the U.S. average during the 1960s and 1970s,” he wrote in a paper for the Hamilton Project, a policy initiative of the Brookings Institution. The Dube standard would produce minimum wages above $11 an hour today in Alaska and Massachusetts and above $10 in Connecticut and New York, but slightly below the current federal floor of $7.25 in Arkansas and Mississippi—and under $5 in Puerto Rico.
It’s a shame Coy didn’t spend more time focusing on the trade-off mentioned above. He might have found economists who describe any increase in the government-mandated minimum wage as a cruel hoax perpetrated on unskilled workers.