The minimum wage is often a contentious issue. One thing that should be avoided is simply citing an Economics 101 textbook, which is only meant to introduce basic concepts involving a few variables. In the real world, there are many other factors not included in introductory models that need to be considered into any analysis of the impact of the minimum wage.
In 2013 the Initiative on Global Markets at the University of Chicago’s Booth School of Business surveyed 38 economics experts about the minimum wage. About one-third agreed that raising the minimum wage in the U.S. would "make it noticeably harder for low-skilled workers to find employment," about one-third disagreed that it would do so, and about one-quarter said they were "uncertain." So the jury's out on that one. But when asked if the costs of raising the minimum wage to $9 and tying it to inflation are "sufficiently small compared with the benefits" to minimum-wage workers such that "this would be a desirable policy," 5 percent strongly agreed, 42 percent agreed, 8 percent disagreed, 3 percent strongly disagreed, and 32 percent were uncertain. That's a total of 47 percent agreeing to some degree vs. 11 percent disagreeing to some degree, a clear margin of economists in favor that, yes, there are negatives, but that the positives of raising the minimum wage at least somewhat clearly outweigh these negatives.
Nancy Folbre notes that traditional economists of the 18th and 19th centuries that market supply and demand forces "would always be constrained by the cost of subsistence, setting a floor under wages." The thinking went that if wages were too low to keep workers alive, dead workers would reduce the labor supply and drive waged higher. Subsistence costs would have to include raising children (replacement workers) since people can't live--and work--forever. But when single women and even children entered the workforce in high numbers in the 19th century, this larger supply of workers were without family. This glutted the supply of workers and drove wages to a level far under what would be needed to raise a family. The minimum wage concept is designed to allow one parent working full-time to support himself, his children, and a stay-at-home spouse, since the costs of childcare often wipe out the benefit of a second minimum-wage income from the other parent.
The 2007 study showed slight (but often insignificant) negative effects for employment. An often-repeated criticism is that increasing the minimum wage would increase unemployment. Studies are divided as to this claim, with several recent ones finding no effect or no statistically significant effect. Even when a 2007 survey of various studies showed a negative impact on employment, many of those in the majority did not show a statically significant effect, while other recent studies showed little or no effect. If one takes a composite view of these, one might project that the effect on employment might be negative, but minimal. Hiring less can reduce the cost of higher salaries, but there are many other ways costs can be reduced or made up.
Folbre points out that on one level, labor might be like any other commodity, but labor is not produced by the market, but by "families and communities who must struggle to find ways to support their contributions to the future." Furthermore, Schmitt examines the 2007 survey showing a negative effect on employment and pokes holes in its assessment, noting that recent data from the U.S. suggest no or a minimal impact on employment. Since low-wage workers are paid so little anyway, a modest increase is not going to be a major source of loss for employers. Those workers will also likely stay in those positions longer, reducing costs associated with turnover, and will likely being more productive for a higher salary, among other positives. Both Whole Foods and Costco, for example, have found paying their workers better leads to higher morale, higher productivity, and less turnover. In addition, many of the companies employing the most minimum wage workers are not small businesses, but large multinational corporations with substantial profit margins and huge executive bonuses and compensation.
- What Economists Think About Raising the Minimum Wage, NYTimes.com Ecomomix, By CATHERINE RAMPELL
- Minimal Wages, Minimal Families, NYTimes.com Economix, Nancy Folbre
- Econmoists disagree on whether the minimum wage kills jobs. Why?, Washingtonbypost.com Wonkblog, by Brad Plumer
- Four things to know about Obama's minimum wage increase, WashingtonPost.com Wonkblog, by Dylan Matthews
- Why Does the Minimum Wage Have No Discernible Effect on Employment? Center for Economic and Policy Research, by John Schmitt
- Minimum wage a bad idea? Ask execs who pay even more, CBS NEWS, by Charles Wilbanks and Alain Sherter
- IGM Forum: Minimum Wage
Brian E. Frydenborg lives in the Washington, D.C., metropolitan area. He received his Master of Science in peace operations from George Mason University's School of Public Policy in 2011. Frydenborg also holds a double major Bachelor of Arts in history and politics from Washington and Lee University.