The minimum wage muddle

David Brooks
David Brooks

Once upon a time there was a near consensus among economists that raising the minimum wage was a bad idea. The market is good at setting prices on things. If you raise the price on a worker, employers will hire fewer and you'll end up hurting the people you meant to help.

Then, in 1993, economists David Card and Alan Krueger looked at fast-food restaurants in New Jersey and Pennsylvania and found that raising the minimum wage gave people more income without hurting employment.

Today, raising the minimum wage is the central piece of the progressive economic agenda. President Barack Obama and Hillary Clinton champion it. Cities and states across the country have been moving to raise minimum wages to as high as $15 an hour.

Some of my Democratic friends argue that forcing businesses to raise their minimum wage will not only help low-wage workers; it will actually boost profits. Some economists have reported that there is no longer any evidence that raising wages will cost jobs.

Unfortunately, that last claim is inaccurate. David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve have done their own studies and point to dozens of others showing significant job losses.

Many economists have pointed out that as a poverty-fighting measure the minimum wage is horribly targeted. A 2010 study by Joseph Sabia and Richard Burkhauser found that only 11.3 percent of workers who would benefit from raising the wage to $9.50 an hour would come from poor households.

A study by Thomas MaCurdy of Stanford built on the fact that there are as many individuals in high-income families making the minimum wage (teenagers) as in low-income families. MaCurdy found that the costs of raising the wage are passed on to consumers in the form of higher prices. So raising the minimum wage is like a regressive consumption tax paid by the poor to subsidize the wages of middle class workers.

What we have is a complicated situation. If we raise the minimum wage, a lot of people will benefit and a lot of people will be hurt. A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs.

My guess is the economists will never give us a dispositive answer about who is hurt or helped. Economists have biases and reality is too granular.

The key intellectual upshot is that the laws of economic gravity have not been suspended. You can’t intervene in the market without unintended consequences. Raising the minimum wage will produce winners among job holders from all backgrounds, but it will disproportionately punish those with the lowest skills who cannot justify higher employment costs.

David Brooks is a columnist for The New York Times.