Is a higher minimum wage worth job losses?
Thursday, April 19, 2018
While the federal minimum wage of $7.25 an hour has remained unchanged since 2009, 21 states have changed their minimum wage laws since January 2014, according to the Economic Policy Institute in Washington, D.C. Meanwhile, 41 localities have adopted minimum wages above their state minimum wage.
The biggest argument against increasing the minimum wage is that it will hurt the economy and result in fewer jobs. But according to a new EPI paper, evaluating the strengths and weaknesses of minimum wage hikes should focus on costs and benefits for low-wage employees, not job loss.
"The minimum wage is the only policy where the bar is so high that a prediction of even one lost job is considered unacceptable," said economist Ben Zipperer, co-author with EPI economic analyst David Cooper and distinguished fellow Lawrence Mishel, in a statement. "This singular focus ignores the benefits of boosting wages for the vast majority of low-wage workers that happens when you raise the minimum wage."
Aparna Mathur, a resident scholar at the American Enterprise Institute in Washington, D.C., takes a different view of the beneficial outcomes of raising minimum wages.
"While minimum wage hikes may appear to be a great way to help low-income workers, their impact on jobs is less well understood," she told MultiBriefs.com. "Employers may respond to higher minimum wages by replacing workers with automation, or letting them go or not creating new positions. Hence it's a risky strategy."
Mathur supports an existing federal program to assist low-income workers.
"A better means to help workers is to expand the Earned Income Tax Credit program," she said. "That imposes no new costs on employers, keeps workers attached to the labor force and also supplements their income."
According to one recent restaurant industry poll, the public favors minimum wage increases. The poll "found that 7 in 10 Americans want to see the minimum wage raised even if it means that they'd have to pay more for meals," according to Lisa Graves and Zaid Jilani.
The "Fight for $15" campaign to gain a higher minimum wage for workers began in Seattle. Voters there, with city council member Kshama Sawant spearheading a grassroots movement, approved phased-in hikes to the minimum wage, eventually reaching $15 per hour this year.
There are seven states with no minimum-wage law or a minimum wage below the federal minimum wage of $7.25 an hour. The federal minimum wage is the law in all of these states: Alabama, Georgia, Louisiana, Mississippi, South Carolina, Tennessee and Wyoming. But voters in red states such as Florida and Nebraska have approved minimum wage hikes.
The Congressional Budget Office "estimated that raising the minimum wage from $7.25 to $10.10 would have increased the hourly wages of 17 million workers by 14.5 percent, prompting employers to reduce employment by 500,000, or 2.9 percent of those directly affected workers," according to the EPI paper.
"If these employment declines were spread out over the entire group — if all 17 million lost some hours but no workers were out of work for an entire year — all affected workers would be better off, working a little less (2.9 percent fewer hours) but enjoying an annual income increase of 11.6 percent."
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