That it has mixed results and that most of the benefits — and costs — go to people with low incomes.
For an example, consider the discussion in this standard text. (I'm using the 4th edition, after finding a copy in a used book store. I thought my ancient Samuelson might be a trifle out of date.)
Many economists have studied how minimum-wage laws affect the teenage labor market. These researchers compare the changes in the minimum wage over time with the changes in teenage employment. Although there is some debate about how much the minimum wage affects employment, the typical study finds that a 10 percent increase in the minimum wage depresses teenage employment between 1 and 3 percent. In interpreting this estimate, note that a 10 percent increase in the minimum wage does not raise the average wage of teenagers by 10 percent. A change in the law does not directly affect those teenagers who are already paid well above the minimum, and enforcement of the minimum-wage laws is not perfect. Thus the estimated drop in employment of 1 to 3 percent is significant. (p. 122)
(President Obama is proposing a 24 percent increase nationally, indexed for inflation. Many states already have higher minimum wages and some states index them for inflation, so it is hard to make even a quick guess at how many jobs would be lost by his proposal.)
In addition, higher minimum wages encourage some teenagers to drop out of school. These teenagers tend to displace other, probably poorer, teenagers who had already dropped out.
Harvard Professor Greg Mankiw thinks that minimum wage laws are an inefficient way to help the poor. Those accustomed to discounting anything said by a Republican may want to reject what he says. Before they do, they should note that economist (and Democrat) Christina Romer mostly agrees with him. Both think that an increase in the Earned Income Tax Credit, as happened in the Bush, Clinton, and Bush administrations, is a better way to help the working poor.
Megan McArdle thinks that increases in the minimum wage can be unfair.
The thing about unemployment is that it's much, much worse than having a crap low-wage job. It's worse than almost anything. It's one of those life events that people never really recover from. Two years after a divorce or being widowed, people have adjusted, and are mostly about as happy as they were before the terrible event. But after two years of unemployment, people are still miserable. And even after they get another job, a prolonged spell of unemployment often has permanent effects on future earning power, and risk for things like depression. We should weight the losses of the people who are out of work much higher than the gains to the people who get an income boost.
Increases in the minimum wage may be an inefficient way to help the working poor, may be unfair, but they are undeniably popular with the public. I suspect they would be less popular if our "mainstream" journalists told us about the losses from increases in the minimum wage, as well as the gains.
Cross posted at Jim Miller on Politics.
("Ironman" provides an estimate of the "deadweight" loss to the U. S. economy by increases in the minimum wage since 1994. I am not endorsing his estimate, but I thought some of you would like to see his reasoning.)Posted by Jim Miller at March 11, 2013 03:36 PM | Email This