John Locke Update / Research Brief

Do Economists Support Raising the Federal Minimum Wage To $15/Hour?

posted on in Economic Growth & Development, Fiscal Insight, Spending & Taxes
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There is a great deal of public discussion right now about the minimum wage. Democrats and activists want to raise it, and they have settled on the arbitrary figure of $15 per hour, which would be more than double the current federal minimum wage of $7.25/hr. They see it as an issue of economic justice, an easy way to raise people’s incomes.

Others caution that it’s not so simple, and that it would create a lot of problems for small employers especially and wind up making things worse, not better, overall for low-income workers and would-be workers. The higher the hike, the more likely it will cause harm.

In short, it’s an economic topic that deserves a full hearing by the public. A citizenry better equipped with what to expect could decide whether they could support a change in the minimum wage, or how much, according to how they value the different benefits and tolerate the different costs.

But I’ve often noticed that news reports on the debate over the minimum wage tend to avoid one particular set of people: economists. The problem is not only that they avoid subject-matter experts who can discuss benefits, costs, and unintended consequences. It’s also that they ignore the mainstream of economic thinking: that hiking the minimum wage would likely do more harm than good, especially for the young and the least-skilled people wanting to work.

The Employment Policies Institute issued a report this year surveying economists’ opinions on various economic impacts from hiking the minimum wage to $15/hr. Of the 197 economists participating, nearly two-thirds (64 percent) specialized in labor economics, and three-fourths worked in academe. Two-thirds had worked as economists for over 20 years (only 11 percent had worked for 10 years or less). Most were either Democrats (35 percent) or Independents (46 percent), and only 12 percent were Republicans.

What effects do the economists foresee from hiking the minimum wage more than double to $15/hr.? Strong majorities predict:

  • It would have a negative effect on jobs available (77 percent — only 2 percent thought it would have a positive effect)
  • It would have a negative effect on youth employment (84 percent — only 3 percent thought it would have a positive effect)
  • It would have a negative effect on adult employment (56 percent — only 7 percent thought it would have a positive effect)
  • It would make employers look for applicants with greater skills (83 percent — only 1 percent thought it would help people with fewer skills)
  • It wasn’t asked this year, but in the 2015 survey economists foresaw it would make it harder for small businesses to stay open (67 percent and not even one economist thought it would make it easier)

A second glance at those results reveals something else. While most but not all economists agree on those negative effects of the minimum-wage hike, hardly any expect net positive effects. So the best-case scenario offered by a small subset of economists is that it might not create very much harm?

Look at this staggering consensus among economists about what a $15/hr. minimum wage won’t do:

  • 98 percent don’t think it will create jobs
  • 97 percent don’t think it will increase youth employment
  • 93 percent don’t think it will increase adult employment
  • 99 percent don’t think it will help lower-skilled job seekers
  • 100 percent don’t think it will make it easier for small businesses to stay in business

Meanwhile, recent economic research on minimum wage increases has found:

  • After Seattle’s minimum-wage increase, the experienced workers saw their hours cut, and they offset this loss by finding additional work outside the city; less-experienced workers saw no gains; and people out of work stayed out of work, leading to a significant reduction in people joining the workforce (NBER)
  • Minimum-wage increases in America caused price inflation that, just in groceries alone, erased most of the gain the poorest workers (the ones who retained their jobs) got from the higher wage, and that the poor shouldered most of the costs of the increase (University of Zurich)
  • Minimum-wage increase causes greater crime rates among 16-to-24-year-olds, with the criminal externality cost of a $15/hr. federal minimum wage estimated at nearly $2.4 billion (NBER)
  • Minimum-wage increase led to fewer jobs for teens and fewer hours worked by those teens with jobs (MIT)
  • The minimum wage in Canada was ineffective in fighting poverty, as more than four out of five minimum-wage workers were not in low-income families (Fraser)
  • Higher minimum wages caused fewer teenagers to hold jobs while going to school (Mercatus)

The costs and benefits of a minimum wage hike should be front and center in the public debate over the idea. Media do a disservice to readers by ignoring mainstream economic thinking on this hot-button economic topic.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. Serving as Senior Fellow of Regulatory Studies and also Research Editor at the John Locke Foundation, Jon gets in the weeds of all… ...

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