I’ve got good news and bad news.
The good news is that there’s a new proposal coming out today to raise the federal minimum wage to $12.00 by 2020, along with some other useful features I’ll get back to in a moment.
The bad news is that the opponents of the increase, with little regard for the evidence, will soon be trotting out the same tired arguments about how the policy kills jobs and hurts the people it’s intended to help.
But before we re-engage in this age-old dance, let us consider the findings from a recent book that exhaustively analyzes decades of research on this question of the impact of increases in the minimum wage. I’m not suggesting that facts will lead the lobbyists to stand down. I’m just saying that if you’re sick of “he-said, she-said” debates on the issue, you might want to cut through the noise with the help of some highly credible research.
That would be What Does the Minimum Wage Do?, by Dale Belman and Paul Wolfson. Their book just won the prestigious William G. Bowen Award, annually awarded by Princeton University “to the book making the most important contribution toward understanding public policy related to industrial relations and the operation of labor markets.” The book was also featured as Cornell University’s book of the month in November of 2014. The folks at Cornell called it “the most comprehensive analytical, and unbiased assessment of the effects of minimum wage increases that has ever been produced.”
Belman and Wolfson provide a “meta-analysis” (a technique which combines thousands of results from hundreds of studies) of the research on the minimum wage’s effects on earnings, employment, labor force participation, school enrollment, inequality, and poverty. Their core finding:
Considered together, increases in the minimum wage raise the hourly wage and earnings of workers in the lower part of the wage distribution and have very modest or no effects on employment, hours, and other labor market outcomes. The minimum wage can then, as originally intended, be used to improve the conditions of those working in the least remunerative sectors of the labor market. While not a full solution to the issues of low-wage work, it is a useful instrument of policy that has low social costs and clear benefits.
Now, consider this conclusion in regard to the Raise the Wage Act, which will be introduced later today by Sen. Patty Murray (D-Wash.) and Rep. Robert C. “Bobby” Scott (D-Va.). The act has three components that would lift earnings for low-wage workers:
1) Raise the minimum wage in increments to $12 an hour by 2020.
The Raise the Wage Act would raise the federal minimum wage $0.75 in 2016 to $8.00 an hour and raise it an additional $1 per year for the next four years. The Economic Policy Institute estimates that 37.7 million workers would benefit from the cumulative five-year increase. As shown in the infographic above, the family of the average person in this group relies on the earner for more than half of its total income.
2) Tie minimum wage increases to increases in the median wage after 2020.
Historically, inflation has eroded the value of the minimum wage between legislated increases. The Raise the Wage Act would prevent future erosion by indexing the minimum wage to the median wage after the full phase-in.
Past proposals would have indexed the minimum wage to inflation instead of the median wage, but prominent minimum wage analyst Arindrajit Dube offers a compelling rationale for why the median is appropriate. Keeping the minimum-to-median ratio around 50 percent, which this proposal would do, would put it “in line with the international average and with the U.S. historical average during the 1960s and 1970s.”
3) Gradually eliminate the subminimum wage for tipped workers.
In many states, tipped workers (for example, waiters and waitresses) currently have a minimum base wage of only $2.13 an hour. These workers are still supposed to make the regular minimum – employers are required to make up the difference if adding tips to the base wage doesn’t get a tipped worker all the way there – but this requirement is difficult to enforce in practice.
Eliminating the subminimum wage for tipped workers would thus likely help reduce their poverty rate, which is nearly twice as high as the rate for non-tipped workers nationwide. And the experience of the seven states in which tipped workers receive the regular minimum wage suggests that unintended consequences are unlikely – those seven states have actually outperformed other states in tipped-worker-heavy industries since 1995.
To be clear, not every critic of the policy is a lobbyist paid by industries that employ low-wage workers. Some people reasonably assume that making low-wage workers more expensive would lead employers to hire fewer of them, and this proposed increase is larger than many past increases (though still below the $15 that many advocates have called for). But there are many other ways that these wage increases get absorbed, such as through prices, profits and productivity. There’s typically a small pass-through to prices, and some of the higher labor costs come out of profits.
A particularly interesting absorption mechanism is more efficient production from better-paid workers, leading to lower turnover, fewer vacancies, and a more highly motivated staff. That’s one of the reasons a coalition of businesses that employ low-wage workers support this proposal. As Belman and Wolfson put it: “the effect of the minimum wage has largely been one of intended consequences.”
Given our partisan divide, I don’t expect this proposal to be warmly embraced up on Capitol Hill, but you never know. Raising the minimum wage is a highly popular policy—recent poll results show that 75 percent of Americans, including 53 percent of Republicans, support an increase that’s even larger than the new proposal.
So I welcome the Raise the Wage Act and hope that this time around we can do a more well-informed dance.