SEPTEMBER 29, 2016
Poverty, Prosperity and the Minimum Wage INTRODUCTION
Protests by fast-food workers, like these in
North Carolina in 2013, spurred the drive of minimum wage increases around the country.Chuck Burton/Associated
Americans saw the largest annual rise in real income in almost 50 years with 3.5
million lifted out of poverty as the economy grew and jobs increased.
Is this good economic news also evidence that the minimum wage increases enacted
in cities and states have proved their benefits?
For your Works Cited Page, this was accessed on 6/20/2017 from: https://www.nytimes.com/roomfordebate/2016/09/29/p overty-prosperity-and-the-minimum-wage
Don’t Ignore the Costs of Minimum Wage Increases When Celebrating the Benefits
Michael R. Strain is the director of economic policy studies at the American Enterprise Institute. UPDATED SEPTEMBER 29, 2016, 3:22 AM
Given the good news in the Census Bureau’s annual report on poverty and income, can we conclude that minimum wage increases have proven their benefits? To consider, let’s take a step back and recall that an underlying reality of minimum wage increases is a familiar one in economics: tradeoffs.
Some workers get a raise, at the cost of there being fewer jobs for
low-wage workers. Most of the higher earnings go to families not in
Raising the minimum wage increases the earnings of some workers. That’s the benefit. The cost to businesses of that increase must be absorbed somehow. Advocates of minimum wage increases plausibly argue that reduced turnover, higher productivity, lower profits and the like absorb much of the increase. I have no trouble believing that this happens in many cases.
My reading of the economics literature also suggests that businesses absorb some of the costs of a higher wage bill by employing fewer workers and charging higher prices for the goods and service they produce. The nonpartisan Congressional Budget Office estimated the effects of increasing the federal minimum wage from its current $7.25 per hour to $10.10 per hour would generate $31 billion in extra earnings for 16.5 million workers. “However,” according to the C.B.O., “those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold.” And a cost of a $10.10 minimum wage, again according to C.B.O., is 500,000 fewer jobs. The tradeoff, in sum: Some workers get a raise, and the cost of that raise is fewer jobs for low-wage workers. It’s also important to note that the vast majority of the increase in earnings would go to families that are not in poverty.
Beyond the question of whether this tradeoff is good or bad is the question of whether there are better policy alternatives to minimum wage increases.
One of the most significant issues facing the United States is declining workforce participation among men. At a time when men are not finding their place in the labor market, shouldn’t we be finding ways to make it easier for firms to hire workers, and not instituting policies that will make it costlier? Unlike minimum wage increases, earnings subsidies like the Earned Income Tax Credit (E.I.T.C.) make sure the dollars we redistribute find their way to the working poor by explicitly targeting low- income households. And expanding the E.I.T.C. would increase employment. Have minimum wage increases proved their benefits? Sure, in the sense that there are benefits associated with minimum wage increases. But we need to look at costs as well — and there are real
costs. We need to look at the broader canvas on which we will paint a minimum wage increase. And we need to ask whether there are better policies to help reduce poverty and increase household income. There are.
Oh, and by the way, eight states saw their minimum wages increase between 2011 and 2012, for an average increase of 4 percent, and the headline from that year’s Census report is that neither median income nor the poverty rate budged. Median income and poverty were flat for 2013 and 2014 as well, even though 2013 saw 10 minimum wage increases and 2014 saw 18 minimum wage increases. In 2015, 24 states had a minimum wage increase, averaging 6.6 percent — similar to 2014. It would be an error to overstate the success or the failure of minimum wage increases in any of these years.
Effects of Minimum Wage Increases Extend Beyond the Law’s Reach
Maurice A. Jones, Virginia’s former secretary of commerce and trade, is the president and chief executive officer of the Local Initiatives Support Corporation, a nonprofit financial institution that supports urban and rural development in the United States. UPDATED SEPTEMBER 29, 2016, 3:22 AM
It’s too early to show empirically, but in my field we’re convinced that minimum wage increases will reveal their value over time as workers’ incomes rise.
What we do know now is that higher wages in the retail sector have already been a boon to the economy and to low-skilled workers, who make up most of low-income America.
Many companies have raised wages in reaction. But more must be
done to help struggling workers maintain and extend their gains.
This is particularly critical as manufacturing jobs evaporate and more workers turn to employment in retail and service industries. Some of the gains we’re starting to see come thanks to higher minimum wages for people who don’t yet have the training to advance in a job.
The national conversation about low wages, in and of itself, has brought about a shift in the economic zeitgeist, too: Even in states that aren’t rolling out minimum wage hikes, some giant employers, like Target and Walmart, have anted up (both increased their minimum wages by 10 percent — about a dollar an hour — in the past year).
Nevertheless, for many low-income families, a job alone is not enough. When employed people cannot meet their basic expenses (which sadly often include payments to predatory lenders), they can’t build assets, either. And assets are a cornerstone of financial stability, in addition to steady, living wage jobs.
Supporting the 43 million Americans who still live in poverty on a path toward financial well-being requires tackling all the facets of financial life — including, but not limited to, salary.
To climb into the middle class, low-income workers need other supports, too: Employment services that include skills training, financial coaching (to build positive credit and balance the household budget), and access to government income assistance can all help people increase their monthly net income and build assets.
That means more dollars going toward homes, college, retirement savings and into local businesses — the kinds of spending that fuel our economy and the wellbeing of families and the places where they live.
So while higher minimum wage jobs are imperative to living with dignity and for a healthy economy, and we are seeing their good effects, they are part of a broader, more complex picture. We can’t wait
for $15-an-hour wages to take hold in every state of our union to see what happens. Low-income people need much greater access to financial empowerment strategies that work today.
Benefits of Minimum-Wage Increases Seem Too Good to Be True, But They’re Not
Heather Boushey is the executive director and chief economist at the Washington Center for Equitable Growth, and the author of “Finding Time: The Economics of Work-Life Conflicts.” UPDATED SEPTEMBER 29, 2016, 11:27 AM
Some ideas sound too good to be true. Some argue that one of those ideas is: If you want higher incomes and less poverty, then you pay workers higher wages. This logic is leading policymakers around the country to increase their local minimum wage. The last increase to the federal minimum wage was when it rose to $7.25 in 2009, which also coincides with the end of the Great Recession in June of 2009. Since 2009, 28 states and the District of Columbia as well as 43 cities and localities have raised their minimum wage.
The evidence isn’t conclusive, but we have to seriously consider that
raising the minimum wage has done more good than harm.
Advocates for increasing the minimum wage argue that it will improve people’s earnings and make it easier for them to support their families. Some even point to the very good economic news earlier this month — U.S. Census Bureau data show that for 2015, median household income rose 5.2 percent, up to around $56,500, the largest single-year increase since record-keeping began in 1967. Incomes rose across the board: For young people and in households headed by middle-aged adults and older people, and for African-American families, white families, Latino families and Asian American families. We also learned that 3.5 million Americans rose above the poverty line last year. Given that so many places have raised their minimum wage, this is proof at the very least that policies to increase the minimum wage happened alongside real income gains at the national level. An economist’s caution, however, is that correlation is not causation, meaning that just because the two things happened along a time line that makes sense, it doesn’t mean that one caused the other.
There continues to be debate over whether policies such as raising the minimum wage actually raise incomes because higher wages may be offset by employers using less employee time, so that incomes don’t actually rise in the end. While the weight of the empirical evidence points to the conclusion that there have been little or no employment effects from minimum wage increases around the nation, some argue that it hampers employment for some groups or that the “Fight for $15” is a step too far. What the recent upticks in income and decline in poverty tell us is that we have to seriously consider that raising the minimum wage has done more good than harm. When we combine the income data with the fact that we continue to be amid the longest job-creating recovery since the end of World War II — when the U.S. Bureau of Labor Statistics first began tabulating this data — it’s hard to argue that improving the lives of workers is a bad thing.
The Tighter Job Market, Along With Minimum Wage Rises, Pushed Wages Up
Arindrajit Dube is an associate professor of economics at the University of Massachusetts, and a visiting associate professor at Boston University’s Questrom School of Business. He is on Twitter, @arindube. UPDATED SEPTEMBER 29, 2016, 3:22 AM
First and foremost, the drop in the rate of poverty from 14.7 to 13.4 between 2014 and 2015 reflects a strengthening U.S. labor market, as workers are finding jobs. The ease of finding a job is key for escaping poverty.
At the same time, it also helps to have a better paying job. While not all low-wage workers live in low- income families, there is a clear relationship between the two — a relationship that has strengthened during the past few decades. Therefore, the wage growth that we have seen at the bottom has also been an important factor behind the reduction in poverty.
The average minimum wage rose 3 percent, so
its role in cutting poverty was probably modest, but corporate wage
policies also helped.
What’s behind the pay growth? A tight labor market certainly helps when it comes to raising wages, but so do institutional forces. Over the past few years, a slew of major companies including Walmart, Target and McDonald’s have begun instituting voluntary minimum wage standards that specifically raise pay at the very bottom. Such pay policies are a new and important development in the American corporate landscape. Public policy has also played a role, especially in some parts of the country. Today, 29 states and more than two dozen cities have their own minimum wages. The recent increases signal a growing success of the Fight for Fifteen movement, which has its origin in fast-food organizing and the push for a wage mandate in Seattle. To be sure, the impact of minimum wages on employment and incomes remains a controversial topic. However, in my view, the weight of the evidence as summarized by meta-analysis, as well as results from careful studies that create reliable control groups suggest that typical minimum wage increases tend to have limited employment effects, while raising pay and earnings at the bottom and reducing worker turnover. My own research, and my survey of past studies, also suggests that higher minimum wages raise family incomes for the bottom quartile of the family income distribution, and has a moderate-sized poverty reducing effect. For example, a 10 percent increase in the minimum wage can be expected to reduce poverty by around 2 percent. Given the recent minimum wage increases in states like California, Massachusetts and New York, some portion of the reduction in poverty can probably be attributed to changes in the minimum wage. But the change in the (population weighted) average statutory minimum wage across the U.S. between 2014 and 2015 was around 3 percent; so it probably did not play a very big role in reducing poverty at the national level during that time, even though it likely did so in some parts of the country. Once some of the recent increases kick in, we are more likely to see a more sizable impact of the policy.
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Separating signal from noise: a review of 12 major studies on minimum wages and poverty
Is there a sweet spot when it comes to the minimum wage? Yes, though I don’t believe we have a clear sense of where that is — yet. The recent experimentation at the state and city level will hopefully help provide better guidance for an evidence-based approach to minimum wage setting.