FacebookTwitterGoogle+RedditEmail

The Bogus Case Against the Minimum Wage Hike

by DEAN BAKER AND JOHN SCHMITT

Eight states and one city (San Francisco) raised their minimum wage this week, providing a pay raise to just over 1 million workers. In the face of this good news, the opponents of the minimum wage are warning of serious job loss. They are likely to be proved wrong, yet again.

A simple Econ 101 story argues that a higher minimum wage will lead to fewer jobs for teenagers and other workers at the bottom rungs of the labor market. However, at this point a large body of research shows that increases in the minimum wage at the national, state and even local levels have not cost jobs. That may sound counterintuitive; after all, economists always say that when the price rises, demand falls. This should mean that with a higher minimum wage, employers will want fewer workers.

The real story, however, is somewhat more complex. Employers not only care about the wages they pay, they also care about workers’ productivity, and the rise in the pay by itself may cause workers to be more productive.

There are two reasons why this could be true. The first is simply that workers may feel better about their jobs and take them more seriously if they are paid a higher wage. In effect, the higher minimum wage will make the workers getting paid the minimum better workers. Economists call this effect an “efficiency wage” and there is a substantial body of empirical research to support it.

The other way in which a minimum-wage hike could increase productivity is by reducing turnover. Turnover imposes substantial costs even for the least-skilled positions. It requires managers’ time to review applications and interview applicants. In addition, once a new worker is hired, they will require some on-the-job training and supervision. If a higher minimum wage persuades workers to stay at their job longer, many employers will more than offset the higher wage costs by reduced turnover costs. Recent research has demonstrated just this kind of strong connection between a higher minimum wage and lower turnover.

Even if a higher minimum wage did lead to some fall in employment, low-wage workers would almost certainly still be much better off with a higher minimum wage. This is apparent from considering the nature of low-wage work.

As noted before, these jobs tend to be high turnover jobs that workers do not hold for long periods of time. In this context, any job loss associated with a higher minimum wage is unlikely to take the form of workers being laid off from their jobs. More typically it would mean that there will be fewer jobs available so that workers spend more time between jobs.

The issue of job loss is then transformed into a situation where a typical low-wage worker is employed for fewer hours per week or per year, but gets more money for each hour worked. The question is then the relative size of these effects.

Critics of the minimum wage typically argue that a 10 percent increase in the minimum wage would reduce employment of minimum-wage workers by 1-2 percent.

That hardly seems like a bad deal for most workers. Minimum-wage workers will put in 1-2 percent fewer hours over the course of a year, but they will still end up with 8-9 percent more in their paychecks for the year.

It’s also worth noting that most workers who benefit from a minimum wage hike are not teenagers. About 70 percent of the workers who received an increase as a result of the last minimum-wage increase were 20 or older, according to this study.

Higher minimum wages are a simple and effective mechanism for helping the lowest-paid workers. It is also important to remember this is not new ground. In the prosperous decades immediately following World War II, the minimum wage was actually higher than it is today. Adjusting for inflation, the minimum wage would have to rise to about $9 an hour to reach its peak level in 1968. If the minimum wage had kept pace with productivity growth over the last three decades — as it did in the three decades after World War II — the rate would be over $15 today.

Despite criticisms from vocal business opponents, polls consistently show that Democrats, Independents and Republicans all voice support for the minimum wage. This makes sense.  Higher minimum wages are about rewarding work and making it possible for workers to earn enough to support a family, with a minimum of government bureaucracy.

 

John Schmitt is a senior economist at the Center for Economic and Policy Research.

This article originally appeared in Salon. 

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
May 26, 2017
Friday - Sunday
Anthony DiMaggio
Swamp Politics, Trump Style: “Russiagate” Diverts From the Real White House Scandals
Paul Street
It’s Not Gonna Be Okay: the Nauseating Nothingness of Neoliberal Capitalist and Professional Class Politics
Jeffrey St. Clair
The ICEmen Cometh
Ron Jacobs
The Deep State is the State
Pete Dolack
Why Pence Might be Even Worse Than Trump
Patrick Cockburn
We Know What Inspired the Manchester Attack, We Just Won’t Admit It
Thomas Powell
The Dirty Secret of the Korean War
Mark Ashwill
The Fat Lady Finally Sings: Bob Kerrey Quietly Resigns from Fulbright University Vietnam Leadership Position
John Davis
Beyond Hope
Uri Avnery
The Visitation: Trump in Israel
Ralph Nader
The Left/Right Challenge to the Failed “War on Drugs”
Traci Yoder
Free Speech on Campus: a Critical Analysis
Dave Lindorff
Beware the Supporter Scorned: Upstate New York Trump Voters Hit Hard in President’s Proposed 2018 Budget
Daniel Read
“Sickening Cowardice”: Now More Than Ever, Britain’s Theresa May Must be Held to Account on the Plight of Yemen’s Children
Ana Portnoy
Before the Gates: Puerto Rico’s First Bankruptcy Trial
M. Reza Behnam
Rethinking Iran’s Terrorism Designation
Brian Cloughley
Ukraine and the NATO Military Alliance
Josh Hoxie
Pain as a Policy Choice
David Macaray
Stephen Hawking Needs to Keep His Mouth Shut
Ramzy Baroud
Fear as an Obstacle to Peace: Why Are Israelis So Afraid?
Kathleen Wallace
The Bilious Incongruity of Trump’s Toilet
Seth Sandronsky
Temping Now
Alan Barber – Dean Baker
Blue Collar Blues: Manufacturing Falls in Indiana, Ohio and Pennsylvania in April
Jill Richardson
Saving America’s Great Places
Richard Lawless
Are Credit Rating Agencies America’s Secret Fifth Column?
Louis Proyect
Venezuela Reconsidered
Murray Dobbin
The NDP’s Singh and Ashton: Flash Versus Vision
Ron Leighton
Endarkenment: Postmodernism, Identity Politics, and the Attack on Free Speech
Anthony Papa
Drug War Victim: Oklahoma’s Larry Yarbrough to be Freed after 23 Years in Prison
Rev. John Dear
A Call to Mobilize the Nation Over the Next 18 Months
Yves Engler
Why Anti-Zionism and Anti-Jewish Prejudice Have to Do With Each Other
Ish Mishra
Political Underworld and Adventure Journalism
Binoy Kampmark
Roger Moore in Bondage
Rob Seimetz
Measuring Manhoods
Edward Curtin
Sorry, You’re Not Invited
Vern Loomis
Winning the Lottery is a State of Mind
Charles R. Larson
Review: Mary V. Dearborn’s “Ernest Hemingway”
David Yearsley
The Ethos of Mayfest
May 25, 2017
Jennifer Matsui
The Rise of the Alt-Center
Michael Hudson
Another Housing Bubble?
Robert Fisk
Trump Meets the New Leader of the Secular World, Pope Francis
John Laforge
Draft Treaty Banning Nuclear Weapons Unveiled
Benjamin Dangl
Trump’s Budget Expands War on the Backs of America’s Poor
Alice Donovan
US-Led Air Strikes Killed Record Number of Civilians in Syria
Andrew Moss
The Meaning of Trump’s Wall
FacebookTwitterGoogle+RedditEmail