Waging A War

A very interesting editorial from the editors of Bloomberg News on, of all things, raising the minimum wage and why it needs to be done.

Raising the minimum wage won’t entirely solve the problem of anemic incomes, but it would help. Economists have long found that boosting the minimum wage can raise income levels for those earning just above the minimum. Employers, seeking to protect “wage ladders,” often bump up salaries for slightly higher-paid employees, too.

This is one of many reasons that critics, including business groups like the U.S. Chamber of Commerce, the National Restaurant Association and many Republicans, oppose minimum-wage increases. The argument is that it will hurt the very people it was meant to help by forcing employers to cut jobs, raise prices or both. They point to studies that minimum-wage increases hurt teenagers, because young workers typically get minimum-wage jobs, which become scarce when employers are forced to raise salaries.

But a wave of new economic research is disproving those arguments about job losses and youth employment. Previous studies tended not to control for regional economic trends that were already affecting employment levels, such as a manufacturing-dependent state that was shedding jobs. The new research looks at micro-level employment patterns for a more accurate employment picture.

The studies find minimum-wage increases even provide an economic boost, albeit a small one, as strapped workers immediately spend their raises. A 2011 paper by economists at the Federal Reserve Bank of Chicago found that a $1 minimum-wage increase lifts household income by about $250 and increases spending by about $700 a quarter in the following year. The spending increase is driven by a small number of households that primarily buy vehicles.

A team of economists, led by Arindrajit Dube of the University of Massachusetts-Amherst, compared employment levels in contiguous areas with disparate minimum-wage levels over a 16-year period and concluded in a 2010 paper there are “strong earnings effects and no employment effects of minimum wage increases.” 

Let's back that up and review.  The main arguments that Republicans employ about minimum wage are that first, raising the minimum wage will wreck the economy as jobs are lost.  In fact, more than a few Republicans tried to pin the economic catastrophe on raising the minimum wage in 2006 rather than the effects of income inequality and lax oversight, as if the poorest Americans were earning too much money for the economy to support.  We know that's not true.  Minimum wage hikes at the state level, which happen to be higher and more frequent, don't cost jobs.

Second, Republicans say it destroys small businesses.  Hogwash for the same reasons above:  minimum wage workers spend their raises immediately and do so locally, supporting small businesses and large chains alike.  In other words, Republicans claim the labor market is a zero-sum game, the same people who tell us tax cuts create jobs think raising wages destroy them.

Finally, the notion that youth employment suffers when wages goes up is also without merit, mainly because of the first two reasons:  jobs get created, pay more, and teenagers take that money and spend it.

There are a lot of reasons to raise the federal minimum wage.  It'll never happen with Republicans in charge.