Minimum Wage

Minimum Wages 6/25/16

Article: "Minimum Wage - Maximin"  

On June 21st 2016, the city council in Washington, DC voted unanimously to raise the minimum wage to $15 by 2020. Only California and New York have taken comparable action at the state level. But, thanks mainly to local laws, almost 17m workers have benefited from higher minimum wages since the “fight for $15” began, according to the National Employment Law Project. At least 10m of those will eventually receive $15 an hour.

Campaigners claim that higher local minimum wages are necessary to alleviate poverty, particularly as minimum wages are often not adjusted for years at the state and federal levels. Prices are already 10% higher than in 2009, the last time lawmakers upped the federal rate. 

These justified concerns about poverty are often mixed up with anger about stagnant median incomes or inequality. Minimum wages exert little pressure on middle-America’s earnings; neither do they restrain the pay of bankers or CEOs. Until recently it looked like low minimum wages did cause middle-earners to pull further away from very low-earners during the 1980s. But a recent study by economists David Autor, Alan Manning and Christopher Smith suggests that minimum wages explain only 30-40% of this trend.

Minimum-wages, then, are best viewed as one route to helping the lowest earners. Since nobody thinks that low pay is desirable, the argument against minimum-wages is that they destroy jobs. Campaigners deny this, with some justification. A canonical study in 1993 found that employment in New Jersey restaurants increased, rather than fell, in response to a minimum wage rise. More recent research, from 2010, examined all county-pairs that straddle a state border and found that, for the period from 1990 to 2006, differences in minimum wages had no effect on employment in low-wage sectors.

Other economists dispute these findings. But some jobs clearly can survive higher minimum wages. In 2015 more than half of workers earning at or below the federal minimum wage worked in restaurants, bars and the like. Such service jobs cannot be moved overseas, and many, such as cleaning the floor of a McDonalds, are hard to automate. These jobs will survive if firms can tolerate lower profits or raise their prices sufficiently. Soaring demand for services in fast-growing, high-income areas like New York and San Francisco typically enables them to do so. Seattle began raising its minimum wage in April 2015, initially from the state minimum, $9.32, to $11 for large firms. Yet the proportion of jobs in the Seattle area in the food service and preparation industry has grown from 7.2% in April 2015 to 7.4% today.

The canonical study for minimum wage comes from Card and Krueger - "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania".