Pethokoukis, Economics, U.S. Economy

Yes, let’s double the minimum wage. No, wait, triple it!

Image Credit: shutterstock

Image Credit: shutterstock

Natural economic experiments are great things — well, for some people. North Korea and South Korea provide a natural experiment for comparing  totalitarian central planning to democratic capitalism. The US and the euro zone provide a natural experiment for comparing how economies undergoing fiscal austerity react to different monetary policies. Unfortunately, these experiments create real-life losers: impoverished slaves North Korea, the unemployed in Europe.

That being said, it would be a fascinating natural economic experiment if SeaTac, the small city south of Seattle, ends up raising the minimum wage of Sea-Tac airport’s transportation and hospitality workers to $15 an hour. How will employers react? Adding to the stakes, this is happening at a time when, as The Wall Street Journal puts it today, “the young, the less educated and particularly the unemployed—are experiencing hardly any recovery at all.” In other words, the exact kind of people a minimum wage hike is most likely to hurt. Some facts:

– Only 3% of workers age 25 and over earn the minimum wage or less. About half of all minimum wage (or less) workers are age 24 or younger, many of whom presumably live at home with their parents.

– The 2010 study “Will a $9.50 Federal Minimum Wage Really Help the Working Poor?” by researchers Joseph Sabia and Richard Burkhauser found that a federal minimum wage increase from $7.25 to $9.50 per hour — higher than the $9 that President Obama has proposed — would raise incomes of only 11% of workers who live in poor households.

– In a 2012 study, Sabia and Robert Nielsen found ”no statistically significant evidence that a higher minimum wage has helped reduce financial, housing, health, or food insecurity among the poor.” Why? You have to earn a wage to benefit and 55% of poor, less-educated individuals between ages 16 and 64 don’t work. Indeed, nearly 90% of the wage earners who benefited from the 40% increase in the federal minimum wage between 2007 and 2009 were not poor. They lived in households with an income two or three times the poverty level.

– A  2013 literature review by David Neumark, J.M. Ian Salas, and William Wascher concluded “that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”

– Research Texas A&M economists Jonathan Meer and Jeremy West find raising minimum wage levels may discourage firms over the long-term from hiring new workers. And that may be particularly true thanks to continuing — even accelerating — advances in automation.

Bottom line: raising the minimum wage, as AEI’s Kevin Hassett and Michael Strain conclude, “will make it more expensive for businesses to hire young and low-skill workers at a time of crisis-level unemployment.” If anything, better to lower the minimum wage for the long-term unemployed and for inexperienced workers to boost labor force participation. Then combine that with policies to promote work and reduce poverty such as relocation subsidies for the long-term unemployed and wage subsidies for low-wage, low-skill workers who aren’t parents.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

26 thoughts on “Yes, let’s double the minimum wage. No, wait, triple it!

  1. One thing that may be beneficial is an “entry-level” wage, 30 days at $6.00/hr. The work habits and aptitude can be evaluated and a wage can be set after that.

    • An entry-level wage would still make it harder for unskilled workers to get a job since the employer would still have to pay 6 dollars for 30 days, and that extra cost might not be worth it for them just to find out if a worker is worth keeping hired.

    • Must young workers be paid the minimum wage?

      A minimum wage of $4.25 per hour applies to young workers under the age of 20 during their first 90 consecutive calendar days of employment with an employer, as long as their work does not displace other workers. After 90 consecutive days of employment or the employee reaches 20 years of age, whichever comes first, the employee must receive a minimum wage of $7.25 per hour effective July 24, 2009.

      Other programs that allow for payment of less than the full federal minimum wage apply to workers with disabilities, full-time students, and student-learners employed pursuant to sub-minimum wage certificates. These programs are not limited to the employment of young workers.

  2. raising the minimum wage isnt about preserving or creating jobs; it’s about reducing the deficit; it’s about paying people enough that they can pay their own way, pay taxes, and get off the SNAP & Medcaid rolls…

    • Wrong, it is about increasing the deficit/government dependency by pricing out low wage workers, who will then be forced into government assistance, because 1) they are priced out of the labor market, and 2) there are fewer jobs available, because it already costs a ton to hire people.

      This is already happening, so let’s make the problem much, much worse.

  3. The blogger’s point is ridiculous on its face. Is Alaska Airlines going to move to the airport down the street? Is McDonalds going to close its terminal restaurants and throw up a gigantic golden arches just over the town line?

    As in everything in life, employers’ decision to pay a minimum wage comes down to choices — compared to what? — and it’s not as clearcut as Seattle Sam believes, The jobless rate in Norway is 3.5 percent; in Germany, 5.2 percent; in Denmark, 6.8 percent; . Those countries are among those with the highest degree of unionization in the world. Consequently they have high wages for unskilled workers as well as working conditions that Americans would consider ridiculous.Try to find a store open on Sunday or after 9 p.m. Wal Mart pulled out of Germany.

    Shoppers in those countries pay high prices in addition to enduring inconvenience, But pay they do. Labor force participation rates are higher; unemployment is lower. Could it be because unskilled workers have money to spend?

      • Let’s impoverish a quarter of the population. :et’s also complain about growing social welfare costs and slow growth. A logical disconnect is there. Can you find it?

        • Turd, you blinkered leftists already have impoverished at least ¼ of the population via massive government labor laws and interference, outlawing of unpaid internships, and minimum wages, among other damaging “solutions.”

          Congratulations on discovering your mental disconnect.

          One of many, actually. But it’s a start.

          • It prices them out of the market, Turd.

            This is confirmed by terrible young worker LFPR, unemployment, and increasing income inequality, despite tax increases on “the rich” and recent minimum wage increases.

            You might want to re-read your WaPo piece again, specifically the part about high-earners retaining income (despite tax increases), but growing inequality in the US, more than Europe.

            Funny how your leftist redistribution policies have effects opposite of their intent…

          • No one is being priced out of the market in Denmark, according to a biz columnist who landed there as temporary duty. http://www.cjr.org/the_audit/the_minimum_wage_and_the_danis.php?

            $20/hour for McDonalds workers as enforced by unions, but much HIGHER labor force participation than the US, even by youth. I’ve heard Mesa’s argument for 40 years and then nothing happens. Businesses absorb some costs, raise prices where they can and life goes on, except that now the bottom decile has money to spend and less reason to go on the dole.
            Now I’ve suffered Big Mac sticker shock in Denmark so we might want to aim lower than $20 and phase it in.

          • LMFAO

            Denmark GDP = $213.6 billion

            US GDP = $15.94 trillion

            Good luck with your ongoing Denmark comparison.

          • “Now I’ve suffered Big Mac sticker shock in Denmark…”

            You’ve just refuted your own bullshit there.

            How daft are ye, lad?

          • The shock mostly comes from paying in dollars rather than krone. Happily the Economist has a Big Mac index meant to compare purchasing power across borders, As you can see here, Danes earning $20/hour for flipping burgers pay an effective $4.91 for a Big Mac. Not exactly the end of the world, eh Mesa? http://www.economist.com/content/big-mac-index

    • Is Alaska Airlines going to move to the airport down the street?“…

      No, if the numbers don’t add up to profit they’ll just pull out and give up that portion of the Seattle market…

      Is McDonalds going to close its terminal restaurants and throw up a gigantic golden arches just over the town line?“…

      They have before…

    • To all of you who will compare the U.S. economy to foreign economies. Norway, Germany and so on these countries bear little resemblance to the USA. We have a free market republic, These alternative countries will provide you with job for life but you will never grow or experience any more wealth than your socialist friend working next to you. There is opportunity here but with that comes risk, Just like life!

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