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Blue For Who?
Grey Lady Sounds Note of Caution Over $15 Minimum Wage

The $15 per hour minimum wage proposal gaining momentum on both coasts is so unprecedented that even Noam Scheiber at the New York Times is warning his readers that the economy is headed into uncharted—and possibly dangerous—territory if deep-blue state and local lawmakers get their way:

Even where the proposals are politically viable, the economic challenge could prove daunting. That is because the sheer magnitude of the recent minimum wage increases sets up an economics experiment the country has rarely if ever seen before…

“There could be quite large shares of workers affected, and research doesn’t have a lot to say about that,” said Jared Bernstein, a former White House economist now at the Center on Budget and Policy Priorities who generally favors higher minimum wages. “We can’t assume that because the proposal is out of sample it’s going to blow up. But we have to be less certain about the outcome.”

The Times story focuses on the $15 wage for fast-food workers recently approved in New York State. In the Big Apple, this would represent 60 percent of the average wage, a ratio that “lies at the outer limit of the country’s historical experience with the minimum wage.” In smaller New York cities, “the minimum wage for fast-food workers could rise to 75 percent or more of the wage for a typical worker” when the hikes go into effect, the Times reports.

As David Brooks noted on Friday in a post rounding up the latest academic research on the subject, a dispassionate look at the evidence should leave everyone at least a little apprehensive:

What we have, in sum, is a very complicated situation. If we do raise the minimum wage a lot of people will clearly benefit and a lot of people will clearly be hurt. The most objective and broadest bits of evidence provoke ambivalence. One survey of economists by the University of Chicago found that 59 percent believed that a rise to $9 an hour would make it “noticeably harder” for poor people to find work. But a slight majority also thought the hike would be worthwhile for those in jobs. A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs.

And that’s at $10.10.

It is ultimately better for states to experiment with different minimum wage levels than for the federal government to set one national one, especially since states have such widely differing costs of living. But even while blue states launch into uncharted waters with the $15 wage experiment, they should know that these policies are not likely to be costless. The laws of economic gravity cannot simply be suspended outright with enough political will. Raise the cost of labor enough and employers will cut back on hiring. You don’t need to be a Milton Friedman protégé to believe that raising the minimum wage above three quarters of the median wage will cause a labor surplus; you simply need to believe that incentives are real and markets exist.

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  • Andrew Allison

    Shouldn’t the minimum wage should be related to the cost of living where the wage is paid rather than a percentage of the average wage? Meanwhile, workers currently earning more than the minimum wage can hardly be blamed for thinking that if minimum wage earners are getting paid more than their economic worth, they should be too. This could get messy.

    • JR

      Inflation, my friend. Real wages only grow with productivity. As wages rise with productivity remaining the same, inflation quickly eats away at any and all increases.

      • Andrew Allison

        I agree, but that’s irrelevant to the subject of what, if any, minimum wage is appropriate. Living costs vary dramatically not just across the country, but within states, and having a single minimum wage for either is a prescription for disaster.

    • Boritz

      The author is just using math to draw the relationship to the average after the $15 figure was pulled out of somewhere.

  • rheddles

    If the trunks had any brains they’d propose raising it to $25/hour.

  • Fat_Man

    The true minimum wage remains what it has always been — zero.

  • vepxistqaosani

    A more easily predictable effect is the rise of automation in fast-food franchises. There’s no reason that robots and computers can’t do everything burger-flippers do. The only thing that stopped it ere now is the massive capital expense. But the $15/hr minimum wage will go far toward fixing that problem ….

    The obvious next step, then, is to outlaw automation. Buggy whips, here we come!

    • CapitalHawk

      No, they won’t outlaw automation. Instead they will lament that there is a jobless recovery (assuming that a Republican is President, that is, otherwise it will be the One Percent keeping them down), while simultaneously preventing any limit on immigration (legal or illegal) that lets in millions of low skill and low pay employees so that the wages of all low skill workers will remain depressed. Finally, you then campaign against the massive inequality this has created in the US, which of course is the fault of that evil Republican person and advocate raising the minimum wage (oh, and taxes on the “rich”) as your solution.

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