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ANALYSIS: The Minimum Wage and the Easy Answer

by Susan Bigelow | Oct 10, 2010 5:00am
(3) Comments | Commenting has expired
Posted to: Election 2010, Opinion

Much of the fuss this past week or so, beyond a spate of polls, has been Republican Linda McMahon’s tepid declaration that perhaps she would consider maybe possibly looking at not raising or even lowering the minimum wage. Democrats reacted strongly, unions got fired up, and Richard Blumenthal actually managed to go on offense for once. McMahon suggested later that she was not at all interested in lowering the minimum wage, and that she might, in fact, like to increase it. Okay. Got it.

Beyond the partisan hyperbole surrounding the minimum wage, there is a question: what effect does the minimum wage have on the economy, and on the working poor?

It is a surprisingly muddy issue. Politicians and ideologues would rather give us easy answers such as, “Increases in the minimum wage kill jobs,” or. “The poor need an increase in the minimum wage to survive.” But reality is a lot less clear. Many hot-button political and economic issues are like this, including the effects of government spending and higher taxes on an economy. Because economies and the societies that they exist within are incredibly complex, simple models almost never tell the whole story.

I am a librarian, so my first instinct is to check out the available literature to see what the experts are actually saying. Here is a sampling of what I found on the two major questions surrounding increases in the minimum wage: whether it causes unemployment, and whether it helps the working poor (academic dork note: I searched Business Source Premier from EBSCO, and used subject headings “Minimum Wage” OR “Minimum Wage-Law and Legislation” and added keywords “unemployment” or “poverty.” I limited results to the past two years’ worth of scholarly articles).

So does the minimum wage by itself cause unemployment? Some argue that it does, but a study by Daniel Oesch in the European Journal of Industrial Relations finds no evidence to support that low-skilled workers’ employment is not hindered by legal minimum wages (Oesch). A wide-ranging study of 73 economies found significant effects of some regulations on unemployment, but found that the effects of the minimum wage were not statistically significant (Feldmann). However, by using a somewhat different modeling approach, Joseph J. Sabia finds a small but significant decrease in teenage employment and hours worked with a raise in the minimum wage, and a French study in the journal Economic Modeling suggests that beyond some limit, models show that minimum wage increases raise unemployment in the long term (Gavrel). This is far from clear!

So what about the effect of the minimum wage on poverty? The same economist who found a decrease in teenage employment finds that increases in the minimum wage had no effect on state poverty rates (Sabia and Burkhauser). And yet a study found that the minimum wage was, in fact, a useful tool for combating poverty in developing countries (Grindling), and a new approach to the minimum wage by Oren Levin-Waldman suggests that increases in the minimum wage have a positive effect on median wages and help reduce income inequality. Again, it’s complicated.

This is bad for politics. Voters prefer easy answers, and those politicians who are best at selling simple remedies to complicated social and economic ills often are successful. Have economic problems? Cut taxes! It works, right? Well, no—that’s not so simple, either. Increasing spending and investing in infrastructure isn’t a cure-all, either, as FDR and now Barack Obama are finding out, though the effects certainly aren’t all negative.

We are a people in pursuit of the Easy Answer: Let’s get out of Afghanistan, let’s make prison sentences tougher, let’s have national health care, let’s lower taxes on the rich. Easy! We like our leaders to give us a clear and productive direction to march. But all of these easy answers to complex problems have many, many consequences, some of which we can foresee, and some of which we can’t.

Society is not simple. Policy isn’t like dropping a stone in a still pond, and watching with satisfaction as the ripples expand outward; rather, it’s like tossing a piano into the ocean, and trying to keep track of all the possible effects. The task of those setting public policy should be to weigh the evidence and make decisions based on what will likely do the most amount of good while causing the least amount of harm—but even that can get murky when comparing effects on different segments of society. There is no magic bullet; no solution is ever perfect. The Easy Answer does not exist.

This is not what voters want to hear from candidates, especially after a long decade of political, social and economic turmoil, and so politicians peddle simple answers. McMahon, with her vague promises of curtailing government spending, fixing health care via malpractice reform, and reducing tax rates has perfected the art of the easy answer. To be fair, so has Blumenthal. Her suggestion that the minimum wage was something that could be “looked at” might be the most reasonable thing she’s said yet, sad to say.

Susan Bigelow is the former owner/author of CTLocalPolitics.com. She lives in Enfield with her wife and cats.

References

Feldmann, H. (2009). The unemployment effects of labor regulation around the world. Journal of Comparative Economics, 37(1), 76-90. doi:10.1016/j.jce.2008.10.001.

Gavrel, F., Lebon, I., & Rebière, T. (2010). Wages, selectivity, and vacancies: Evaluating the short-term and long-term impact of the minimum wage on unemployment. Economic Modelling,27(5), 1274-1281. doi:10.1016/j.econmod.2010.02.001

Gindling, T., & Terrell, K. (2010). Minimum Wages, Globalization, and Poverty in Honduras.World Development, 38(6), 908-918. doi:10.1016/j.worlddev.2010.02.013.

Levin-Waldman, O. (2009). The Broad Reach of the Minimum Wage. Challenge (05775132),52(5), 100-116. doi:10.2753/0577-5132520506.

Oesch, D. (2010). What explains high unemployment amonglow-skilled workers? Evidence from 21 OECD countries. European Journal of Industrial Relations, 16(1), 39-55. doi:10.1177/0959680109355307.

Sabia, J. (2009). Identifying Minimum Wage Effects: New Evidence from Monthly CPS Data.Industrial Relations, 48(2), 311-328. doi:10.1111/j.1468-232X.2009.00559.x.
Sabia, J., & Burkhauser, R. (2010). Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?. Southern Economic Journal, 76(3), 592-623. Retrieved from Business Source Premier database.

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(3) Comments

posted by: ACR | October 10, 2010  2:06pm

ACR

A high minimum wage might not only kill jobs, it more likely keeps many jobs from even existing.

I suspect few under 50 even remember a time when the local supermarket employed “bag boys” that not only bagged the customers groceries, but lugged them all to their car too.

Long before the automatic car wash there were teams of people wearing wash-mits, each individual assigned to a specific area on the vehicle as it rolled through.
Increasing labor costs were undoubtedly the primary reason for the advent of the car washes we’re familiar with today.

Like most minimum wage jobs now, those were lousy jobs - but provided at least some form of employment.

Further, who expects to take a minimum wage job and remain at that level?

Even the Dishwasher’s Assistant will eventually move up to Dishwasher, and with a decent attitude onward to Busboy where tip sharing should more than double their original Dishwasher’s Assistant earnings.

The Minimum Wage is a stop-gap and should be viewed as such.

posted by: hawkeye | October 10, 2010  5:32pm

Susan Bigelow: THANKS FOR YOUR NON-PARTISAN VIEW OF MINIMUM WAGE.

Your commentary and references on the minimum wage is both factual and non-political, and it seems to back up Linda McMahon’s assessment on the minimum wage issue.

Thank you for the research you did on this subject, as a librarian.

Keep up the good work, Susan Bigelow!

posted by: CT Bill | October 10, 2010  6:44pm

Susan,

Thanks for an interesting piece.

I can’t agree with your conflating “easy answers” with obvious, proven answers.  Or with presenting right-wing ideology as somehow the “equivalent (in the extremes, that is) of people-first progressive policies.  In your library, you would learn that national health health care *works* all over the world (unlikle the mess that is our U.S. system, pre- AND post-“reform.”  If it’s “hard,” that’s only because so few elected officials have the courage to stand up to the insurance industry - NOT because national health care is somehow “simple” or “easy.”

Same goes for ending the mission-free, budget-busting Afghan war.  It’s an obvious answer and not so hard - IF you have the political will.

Whereas, frankly, lowering taxes on the rich is easy because they (the rich) have political power—but it’s also dumb policy.

Cheers!