Saturday, April 16, 2016

Wage Slaves, Con't

With Hillary Clinton joining Bernie Sanders in the national "Fight for $15" minimum wage movement in this week's final scheduled Democratic primary debate in New York, Ezra Klein sounds very large alarm bells that a $15 federal minimum wage would wreck the economy.

He's probably right, and he explains why.

A $15 per hour minimum wage is so high that we don't have any real idea how it would affect the American economy. The all-time high for the national minimum wage, after adjusting for inflation, was about $11 per hour in 1968. Since the 1980s, the national, inflation-adjusted minimum wage hasn't been higher than $8 per hour. 
Economists disagree about whether these more modest minimum wages have produced significant job losses. One recent study, for example, found that the most recent national minimum wage hike — between 2006 and 2009 — "reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points." 
Other economists dispute that. A comprehensive study of state-level minimum wage hikes between 1990 and 2006 by economist Arindrajit Dube and two co-authors found "no detectable employment losses from the kind of minimum wage increases we have seen in the United States." 
But when I asked the lead authors of both studies about California's recent move to boost the minimum wage to $15, I found they were on the same page: the increase was so large that the effects are unpredictable. Neither man could rule out the possibility that a $15 per hour minimum wage would cause dramatic job losses
One of the most prominent left-leaning economists in the minimum wage debate is Alan Krueger, co-author of a widely-cited 1993 paper finding that a modest minimum wage hike in Pennsylvania didn't cost jobs. Krueger has served in the Obama administration and supports raising the national minimum wage to $12 per hour. But in a New York Times piece last fall, he warned that "a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences." 

There a two realities right now:  One, California and New York make up more than 56 million Americans, or easily one-sixth of the country.  With cities like Seattle moving towards $15, that number is pushing 60 million, or one fifth of America.  I understand the wage increases are designed to be incremental, but there's still a limit.

The other reality is that the rest of the country can't support a $15 minimum wage.
A big concern with California's minimum wage hike was that California is a large and diverse state. Some parts of the state — like the city of San Francisco — have high wages and a high cost of living; in these areas, a large majority of workers are already making more than $15 per hour, and employers paying less than that may not have much trouble finding the money to comply with the new wage. 
But other parts of California aren't so affluent, and in these areas, the higher minimum wage could cost a lot of jobs. Small businesses in cities like Fresno could be forced to shut down, as customers just aren't willing to pay the higher prices needed to cover the higher wage costs. 
In March I asked Dube — generally seen as a supporter of a higher minimum wage — if it was a mistake for a state as large as California to try such a big increase. Would it be better to let $15-an-hour experiments in San Francisco and Los Angeles play out? 
"If you're risk-averse, this would not be the scale at which to try things," Dube told me.
Of course, that point applies with even greater force to the nation as a whole. Themedian wage in Fresno was $15.48 per hour in 2015, meaning that almost half of Fresno workers will be affected by California's new minimum wage law — either getting a raise or losing their job. 
But as the Washington Post's Catherine Rampell points out, there are four states where the median wage is less than $15 per hour.

Yes, the federal minimum wage needs to go up.  $10.25, which Democrats pushed recently, was a good start.  States like California and New York are acting where Republicans in Congress continue to block any wage increase.  It's been $7.25 for a decade now and is still the minimum wage in 18 states, with another dozen less than $9.

But $15 will cause chaos in places like Alabama or Pennsylvania (yes, $7.25 is minimum wage is a union Rust Belt state like Pennsylvania, folks) or as much as I loathe to say it, here in Kentucky. Kentucky's economy isn't California's or New York's.

A $15 federal minimum wage is going to be ruthlessly painful, and I don't see Clinton or Sanders saying that they have plans to help the millions of people who would lose their jobs.  I don't even hear them admitting there's going to be serious pain in California and New York as a result.

Ezra's right, it's time for Dems to say "OK, but $15 an hour is going to require a lot of other things to make it work, so let's talk about what needs to be done."

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