I have been writing a paper about the minimum wage for our microeconomics course, and I found the topic quite interesting. Most of the public favors raising the minimum wage (Dube, 2013), which is not surprising given that the real value of the minimum wage has fallen since the 1960s even as worker productivity has doubled (Krugman, 2013). The current federal minimum wage is $7.25, and some state minimums are higher.
One of the arguments against raising the minimum wage is that the increased cost of labor has a negative effect on employment. However, much of the evidence seems to suggest that negative effects on employment are small or non-existent (e.g., Blanchard, Jaumotte, & Loungani, 2014; Dube, Lester, & Reich, 2010; Leonard, Stanley, & Doucouliagos, 2014). For context, note that the Congressional Budget Office (2014) estimates that raising the minimum wage to $10.10 per hour would increase the earnings of 16.5 million workers and lift 900,000 people out of poverty while costing the economy 500,000 jobs. Given this estimate, it seems favorable to raise the minimum wage. It is worth mentioning that a debate is still ongoing regarding the best methodology to use in this line of research.
Some opponents of raising the minimum wage claim that the Earned Income Tax Credit (EITC) is more effective at assisting low-income workers. The EITC is a refundable tax credit that is available to low-income households that earn income from wages, salaries, tips, business or farm revenue, or disability income (IRS, 2014). Interestingly, the EITC puts downward pressure on wages, and the minimum wage helps to mitigate this (Dube, 2013). Thus, the EITC and the minimum wage are complementary policy tools.
Furthermore, some claim that the minimum wage only benefits teenagers from well-to-do families. Cooper and Hall (2013) provide demographic information for low-income workers that debunks this myth. Nearly 88 percent of workers earning the minimum wage are over 20 years old, around 55 percent work full-time, nearly 45 percent have some post-secondary education, and nearly 70 percent of workers’ families earn less than $60,000 per year. Furthermore, the average minimum wage worker earns nearly half of their household income.
Given this evidence, it seems that raising the minimum wage is a good idea. Doing so would provide security to working families and may lift a significant number of workers out of poverty. Some of the arguments against raising the minimum wage seem out of date given the knowledge that we now have regarding the effects of such a policy choice. Please see this blog post, written by SOC 350 students Victoria Wood and Lioma Terrero Soto, for local context.
Blanchard, O. J., Jaumotte, F., & Loungani, P. (2014). Labor market policies and IMF advice in advanced economies during the Great Recession. IZA Journal of Labor Policy, 3(2), 1-23. Retrieved from http://www.izajolp.com/content/3/1/2
Congressional Budget Office. (2014) The effects of a minimum-wage increase on employment and family income [Publication 4856]. Congress of the United States, Congressional Budget Office. Retrieved from http://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf
Cooper, D., & Hall, D. (2013, March 13). Raising the federal minimum wage to $10.10 would give working families, and the overall economy, a much-needed boost. Washington, DC: Economic Policy Institute. Retrieved from http://www.epi.org/publication/bp357-federal-minimum-wage-increase/
Dube, A. (2013, November 30). The great divide: The minimum we can do. The New York Times. Retrieved from http://opinionator.blogs.nytimes.com/2013/11/30/the-minimum-we-can-do/
Dube, A., Lester, T. W., & Reich, M. (2010). Minimum wage effects across state borders: Estimates using contiguous counties. The Review of Economics and Statistics, 92(4), 945-964.
Internal Revenue Service. (2014, February 25). Do I qualify for EITC? Retrieved from http://www.irs.gov/Individuals/Do-I-Qualify-for-EITC%3F
Krugman, P. (2013, February 17). Raise that wage. The New York Times. Retrieved from http://www.nytimes.com/2013/02/18/opinion/krugman-raise-that-wage.html?_r=0
Leonard, M. L., Stanley, T. D., Doucouliagos, H. (2014). Does the UK minimum wage reduce employment? A meta-regression analysis. British Journal of Industrial Relations, 52(3), 499-520.