Sort of. Economists’ opinions about increasing the minimum wage are mixed. The celebration is about the data that we’ll eventually get on the change in employment. This will improves estimates of the elasticity of demand for low-skilled labor, which is the crucial variable for calculating how much unemployment increased minimum wages create.
Obviously the wage increases are good for those low-skilled workers who keep their jobs – a simple transfer from businesses to employees. Unfortunately those most likely to lose their jobs as wages increase will disproportionately include the least skilled and the most disadvantaged. Additionally, a part of the income gains will be lost to workers as their higher income reduces their eligibility for health-care subsidies and other income contingent programs such as Pell grants, the federal Earned Income Tax Credit, etc.
These are the reasons most economists prefer an increase in the EITC to an increase in the minimum wage. The EITC – first implemented by none other than Richard Nixon, with the support of Milton Friedman – is a negative income tax targeted at low-income workers with families. It doesn’t increase the wage that employers pay, instead it increases how much income workers get after taxes. So the EITC does not increase unemployment, and the money can be targeted at workers with families. A great program!
However, no one besides economists cares about the EITC. So the political choice is generally about leaving the minimum wage where it is or increasing it. My guess is that given this choice most economists think the number of lost jobs will be small enough, relative to the income gains for those who keep their jobs, to justify the increase.
I’m no economist, but it strikes me as a horrible development. Rich cities — LA, SF, Seattle — are already showing marked job losses because of high minimum wages. I don’t see how Oregon can absorb. A lot of marginal businesses and marginal workers will be priced out. Even Walmart is closing stores after their recent move to raise their minimum to $10. Not $13 or $15, but $10!
The superhigh minimum is billed as the cure for poverty. But Oregon already has one of the higher minimum wages among the states. And guess what, a high rate of poverty! Maybe that should give the good legislators pause.
Good luck to the lowest rung if the next recession hits while their employers are getting hit with this rapidly rising wage.
Just for perspective — suppose that someone mandated that UO had to jack up faculty pay by 46% over the next few years. Great, you might say! But then UO had to jack up tuition that much to pay the bills. What happens to enrollment? What happens to the “business”? There you have the situation of the marginal business in Lane County when this hits them.
Good luck.
I do care about the EITC, and am not an economist (I took an econ class once. I only managed to pass by never attending class except for tests because reading the book was okay, but listening to anyone talk about the principles acted more or less like a hallucinogen to me insofar as retaining and making sense of anything at all). However, I think the reason the EITC is unpopular is that often people who live in edge-of-poverty conditions have a really hard time with getting an influx of cash once a year.
Maybe a better option would be to try to figure out how to (carefully, accurately) get the EITC to pay out, say, quarterly or monthly, like so many other social safety net benefits do, allowing lowest-income workers to manage a non-deplorable living situation year-round, and probably having a ton of side benefits for general health in people who are eligible because money stress both makes people sick and makes people kind of stupid* about what they do with sudden cash. Plus, expenses don’t happen annually, by and large. I recall being very young with young kids and I didn’t get to not pay for their daycare all year until tax time, you know?
Of course, that would require paperwork and administration of a program and stuff, so I can see that would be a hard sell, but for myself, I am generally in favor of improving wages for lower-income workers, but would be very interested in a stable and frequent EITC-type adjustment as an alternative.
*I’m in no way saying people who are poor are stupid, just that people who only infrequently have “enough” tend to spend their sudden money immediately while they have it because it will be gone soon enough. They (or we, maybe I mean we) generally know this isn’t really the best plan, but that need to get it while possible is powerful.
I am definitely not an economist, but one way to thread this needle might be to have the first X dollars, say $20K, of earned income exempt from FICA payroll taxes for both employees and employers. That would encourage employers to hire workers and would allow low-wage workers to keep more of their income.
I’m sure that this change would result in perverse incentives and unintended consequences, but it would resolve the “lump sum” problem. It would also resolve a problem not mentioned above, which is that low-wage workers have to file their taxes in order to receive the EITC (according to the IRS web site). That’s a pretty high hurdle for people living hand-to-mouth.
Not clear the min wage helps those who keep their jobs if prices go up, or if higher wages means less food stamps, WIC or other government support, particularly for those low wage workers with large families and hence high transfer levels. Might make the federal government better off as they get more social security taxes and pay out less in benefits. I’m having a harder time seeing benefits to Oregon. Especially when the EITC can be so much better targeted.
Is there any evidence that effective marginal tax rates are over 100%?
Also it is simply ridiculous to think that inflation moves one-to-one with the cost of unskilled labor. Even if the only input were minimum wage workers, aggregate demand is downward sloping.
And furthermore, even Alan Krueger, someone who found some evidence that the minimum wage could increase employment due to monopsony power, recently declined to support a 15 min wage. The highest he would go is $12.
I’m sorry did Economists see the most recent recession coming? Most didn’t.
Do Economists care that budget reductions have put a squeeze on large parts of our economy? Not big enough picture for them.
What side of the fence were Economists on regarding the Bail Out? Mixed.
Take away: Economics is not a science and is constantly at odds with it’s self.
Can oncologists predict if/when you’ll get cancer?
No.
Can they agree on surgery vs. radiation?
No.
Fuck medicine.
Economists have a pretty good track record, in fact. As it so happens, it was recently pointed out to me that economists predicted seven of the last four recessions.
Old joke.
You’re welcome.
Now wouldn’t it be refreshing if economists came out and said “We really know as little about the economy as medicine knows about cancer.”