Minimum Wage Increases Breaking Out All Over!

In this Thursday, Nov. 20, 2014 photo, supporters of legislation that will raise the minimum wage in Illinois rally outside t
In this Thursday, Nov. 20, 2014 photo, supporters of legislation that will raise the minimum wage in Illinois rally outside the Illinois State Capitol in Springfield Ill. Much is at stake as Republican Gov.-elect Bruce Rauner, who has asked lawmakers not to move major legislation until after he takes office, picks his own loyalists and others to replace Gov. Pat Quinn's people across state government. Illinois has not had a transition from one party to another since Rod Blagojevich took over for George Ryan in 2003. (AP Photo/Seth Perlman)

As some wit tweeted a few months ago, the American electorate wants legal pot, higher minimum wages, and the most conservative Congress ever.

At any rate, the newly legislated higher wage floors in states and cities across the land, in tandem with a number of annual adjustments in minimum wages for inflation, just went into effect in the new year:

All told, 29 states will exceed the federal minimum wage of $7.25 an hour at the beginning of January, according to the National Conference of State Legislatures.

The initial changes will enhance minimum pay by as little as a few pennies to as much as $1.25 an hour, affecting about 3.1 million employees, according to the Economic Policy Institute, a liberal research group.

By now, about 60 percent of the workforce is covered by minimum wages above the federal level.

I've been getting a number of queries about all this, so here's some Q&A:

Q: What with all these sub-national increases, do we even need a federal minimum wage anymore?

A: Yep. There's still that 40 percent that's covered by the federal level. Though Arkansas just raised their minimum, the federal minimum is still largely the southern minimum. Given the differences in costs of living across the land, state variation makes sense. But even so, to let those in low-wage labor markets just covered by the federal minimum fall so far behind the rest of the country is to foster greater geographical inequalities.

Q: What about the unintended consequences? Won't there be job losses?

A: I've written many posts about this which you're welcome to dig up, but there's now such a large body of research based on all this regional variation that any debate quickly devolves into cherry picking the study that has the answer you want (i.e., opponents like to see significant job loss effects and vice versa). Therefore, I think it's efficient to be informed by the two meta-analyses I know well, both of which come to the same conclusion:

Belman and Wolfson: "Bearing in mind that the estimates for the United States reflect a historic experi­ence of moderate increases in the minimum wage, it appears that if negative effects on employment are present, they are too small to be statistically detectable."

Stanley and Doucouliagos:"...with 64 studies containing approximately 1,500 estimates, we have reason to believe that if there is some adverse employment effect from minimum-wage raises, it must be of a small and policy irrelevant magnitude."

It is of course plausible that some workers experience hours' reductions or job losses from minimum wage increases. But even the NFIB (small biz lobby) guy quoted in the NYT piece linked above says, "The likeliest scenario won't be layoffs," claiming instead that employers will look for ways "to avoid creating new jobs."

What is implausible is to suggest that the benefits to low-wage workers are outweighed by the costs. Not even close. Even the oft-cited CBO study, which some believe highballed the job loss impacts, found 24.5 million would get a wage bump (16.5 million directly and 8 million through spillovers) and 500,000 jobs lost, implying a benefit/cost ratio of 49/1.

Q: We've already got a problem with labor saving technology displacing workers. Do we really want to incentivize more of that by mandating wage increases?

A: This is the "let's be a third world economy!" wage strategy: keep wages low enough to dis-incentivize capital investment. Bad idea.

First, there's no evidence of any acceleration in the pace at which machines or AI are replacing humans. To the contrary, both productivity growth and capital investment have been laggards of late. But more to the point, to discourage such investments/innovations by ensuring wages stay low is to work against improving productivity, a strategy that's antithetical to economic progress.

And again, given the dozens of increases taking place as we speak, if raising the minimum wage displaced large numbers of workers, we'd know it and those meta-analyses would yield much different results.

Q: But because it's not keyed off of income the minimum is poorly targeted. Wouldn't it be better to raise the EITC?

A: It takes both. The minimum wage and the EITC are make-work-pay complements, not substitutes.

First, the minimum wage reaches many poor and near-poor people. The CBO estimates that a federal increase to $10.10 would raise 900,000 out of poverty; Dube finds that increases in the wage floor have historically lifted twice that many out of poverty. And basing targeting judgments wholly on our unrealistically low poverty line is too restrictive: most of the benefits from the typical increase flows to low- and moderate-income households.

But let's be very clear about this point: the minimum wage is more than a targeted or means-tested program. It's a labor standard, a floor below which Congress will not allow wages to fall. As with overtime, child labor, or safety standards, the motivation is to block a practice that we as a nation consider inconsistent with our values, in this case, the payment of wages below an agreed upon level.

At a practical level while about half the states have state versions of the EITC that piggy back off of the federal one, one just doesn't see states putting higher EITCs on their ballots the way we do with minimum wage increases. I'm not sure why that is, but it may be something about inherent limits to how much governments are willing to redistribute through the tax code.

At any rate, given the success of minimum wage ballot initiatives, the momentum of the movement, and the continued evidence regarding their benign impact (if that's how all of these new changes pan out), I suspect we'll continue to see more sub-national action on this issue.

This post originally appeared at Jared Bernstein's On The Economy blog.