Raise the Minimum Wage, Congress

(Bloomberg Opinion) -- Increasing the minimum wage is on my list of policy priorities for the new Congress. Why? Unlike more complex and ambitious pro-worker policies, such as co-determination, raising the minimum wage is a simple, common concept that can hopefully inspire the public.

There’s also a chance that minimum wage hikes will ignite a virtuous cycle of wage bargaining. Stagnant wages during the 2000s — at least partly as a result of Chinese competition — were followed by the Great Recession and the long, grinding recovery. During that period, workers had very little bargaining power, and so demanding raises was out of the question. The last time wages were going up this rapidly, in the late 1990s, a typical 35-year-old worker now wasn’t even employed:

Raise the Minimum Wage, Congress

Economic research shows that people are shaped by their early experiences in the working world. Now, with unemployment low and the pressure of Chinese wage competition having receded somewhat, employees should be aggressively demanding more pay. But two decades of lackluster wage growth may have created a culture of helplessness among workers — a culture that minimum wage increases could help to change.

In addition, there’s a strong possibility that a higher minimum wage will raise incomes for many of the people who need it most. The latest research is encouraging.

First, there’s the latest update to the study of Seattle’s 2016 decision to raise its wage floor to $15, which gave economists a unique opportunity to study the impact of a large minimum wage hike in real time. A team of economists has been taking advantage of detailed data provided by the state to track the fates of individual workers affected by the policy.

The team has been releasing one paper every year. In 2017, it reported that the minimum wage increase was having negative effects, raising wages by only a small amount and reducing low-wage workers’ hours, resulting in an overall income loss. That result, which found more negative labor market impacts than most minimum wage studies, injected some uncertainty into the debate.

The team’s 2018 results are more reassuring. They show that although higher minimum wages did contribute to a reduction in working hours, the gain in wages more than made up for it, with overall weekly incomes going up by an average of $8 to $12. That’s a modest amount, but every little bit helps.

Other papers are even more encouraging. A recent study by economist Arindrajit Dube finds that a 10 percent increase in the minimum wage will tend to increase incomes for the poorest 15 percent of families by about 3.3 percent after 3 years, while cutting their poverty rate substantially. Dube uses publicly available survey data rather than the higher-quality administrative data used by the Seattle team. But he is able to analyze a much larger number of minimum wage hikes, at both the federal and state level.

Another recent paper, by economists David Neumark, Brian Asquith, and Brittany Bass, studies the effect of various anti-poverty policies, including the minimum wage, on incomes in poverty-stricken areas. It finds that a higher minimum wage results in lower poverty rates in those areas 10 years later. Their estimate of the size of effect is about half as large as what Dube finds, but still fairly substantial.

It’s especially noteworthy that these two papers agree about the minimum wage’s impact. The two lead researchers have been at loggerheads for years over the question of the minimum wage’s effect on employment levels — Dube’s papers tend to find that minimum wage hikes cause very little job loss, while Neumark’s tend to reach the opposite conclusion. The fact that their latest papers agree that minimum wage reduces long-run poverty should be taken as especially compelling evidence.

So raising the minimum wage is looking more and more like a good bet. Although it’s certainly not the only policy that cuts poverty — the Earned Income Tax Credit is highly effective — there seems little reason not to use it. A national $15 minimum wage, which seemed radical to many only a few years ago, now seems like a solid, empirically grounded policy idea.

But if Congress does decide to set a $15 minimum wage, it should consider two major modifications. First, the minimum wage should be indexed to the rate of inflation, so raising it wouldn’t require political battles every decade or two. Second, low-productivity regions, especially in rural areas, should be allowed to set a somewhat lower minimum wage, since these regions often can’t sustain wages as high as those paid in big cities.

With these modifications, a $15 federal minimum wage would go a long way toward making the U.S. more of a land of opportunity for the working poor.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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