Minimum wage: What do we really know about it?

If you have been reading the news lately, you might be familiar with what some have called the Seattle minimum wage disaster. According to this recent study from the University of Washington, Seattle’s recent hike, which raised the minimum wage from $10 to $13, caused the average low-wage worker to lose more than 6 percent of their monthly paycheck due to cuts in hours, layoffs, and delays in new hiring.

While longtime critics of minimum wage increases touted this result as “bad news for liberals,” another recent study done at the University of California at Berkeley found the opposite result: that the minimum wage hike caused no significant job loss.

This discrepancy is typical in minimum wage research. Although it is one of the most studied economic phenomena ever, it seems like its true effects are unknown. Studies systematically disagree on the short-term, medium-term, and long-term effects of minimum wage increases. Even meta-studies and reviews of the literature disagree about its effects.

The most compelling explanation I have heard about Seattle’s minimum wage situation is that, while moderate increases in minimum wage have little to no effect on employment, the size of Seattle’s minimum wage increase went past moderate. This conclusion is one supported not only by meta-studies on past minimum wage research, which have shown that modest increases seem to have little employment effect, but also by a study done by the very same group at Washington University who found that the raise to $13 per hour hurt workers. This study found that Seattle’s first minimum wage bump from $9.47 to $11 caused minimal job and hour loss, which was offset by increased wages. In other words, Seattle, instead of aiming for a minimum wage of $15, should perhaps satisfy itself with a more modest increase.

But this conclusion far from settles the debate. There is just too much discrepancy in the data, from which two narratives are typically drawn: Either wage increases for minimum wage workers is worth the negligible effect on employment rates, or there is enough job loss that they hurt minimum wage earners in the long run. Not surprisingly, which narrative is told breaks down mostly along partisan lines, even among economists. But is this dichotomy between wages and jobs the appropriate way to frame the debate?

For one thing, this framing makes the minimum wage opponents’ narrative much more compelling. They argue that, while well intentioned, minimum wage is a naive policy, one too blunt or even perverse to achieve its goals. They point to those studies which conclude that raising the minimum wage reduces jobs for low-wage workers, increases unemployment, does little to reduce poverty (because the majority of minimum-wage workers do not live in such households). They also say minimum wage hikes reduce both training opportunities for youth, and wages for low-skilled workers in uncovered jobs.

Another reason these anti-minimum-wage arguments are so convincing is because there are other, probably better ways, to lift people out of poverty. For example, we could take steps to address stagnating economic growth, as well as wealth inequality. Other commonsense programs which have some bipartisan support are the Earned Income Tax Credit, as well as childcare programs and health care subsidies for poorer working families.

But this framing of minimum wage debate in terms of jobs versus wages was not its original framing. In fact, reducing poverty was intended to be an indirect benefit of the policy. The first economists to provide a theoretical justification for the minimum wage, Sidney and Beatrice Webb, in 1897, did so on the grounds that it prevented “sweating,” defined as “the unfair exploitation by unscrupulous employers of the necessities of the poor and more helpless class of workers.”

It was the Great Depression which made the need for such laws increasingly obvious. And in 1933, the first pseudo-national minimum wage policy, the National Industrial Recovery Act, was passed by Franklin D. Roosevelt in 1933. Unfortunately, business interests fought back and were able to get that law declared unconstitutional. However, Roosevelt cleverly used the indirect methods at his disposal, leveraging the government’s purchasing power as a way to improve labor standards. He passed legislation requiring government contractors to adopt basic labor standards: the 8-hour work day and 40-hour work week, a ban on child labor and a minimum wage. Minimum wage was only part of the package of reforms intended to reshape the structure of the economy, to set the minimum floor under which was considered the exploitation of workers.

These government programs set the minimum wage by example, and businesses had to raise wages to compete for workers. By 1938, the prevailing attitude of the times had changed and the Supreme Court reversed its standing on the minimum wage. This set the stage for the Fair Labor Standards Act, passed in 1938.

The history of the minimum wage illustrates that it is not a policy to be taken alone. It was part of a package which established minimum labor standards to prevent employers from exploiting their workers. That is why the act was called the Fair Labor Standards act as opposed to something along the lines of the Reduction of Poverty Act. History suggests that the minimum wage debate ought to be reframed in terms of this goal.

To be certain, many minimum wage earners are exploited. Studies have shown that the typical picture of a minimum wage worker as a teenager working part time is patently false; 88 percent are at least 20 years old, 35.5 percent are over age 40, 28 percent have children and 55 percent work full-time. More support themselves than at any other time in history. Additionally, the minimum wage is not enough for people to live on. Minimum wage earners who work full time can only afford a one-bedroom apartment in only 12 counties across the country, in Arizona, Oregon and Washington State.

We live in one of the world’s wealthiest countries. Should we consider this to be an acceptable standard? Opponents object to the loss of businesses or cutbacks in hours. But why should we consider businesses which pay their workers below a living wage as entitled to exist? As FDR said during the passing of the FLSA, “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

It certainly is also true that many more businesses could operate at a profit if government removed child labor laws and worker protections. But this does not mean it should.

Thinking about minimum wage in this way is in line with the original establishment of the law, and why it was included in a large package of labor reforms. The minimum wage debate ought to be a referendum about what we want America to be, what we want the minimum standard of employment to be. The effects of minimum wage are hard to verify, and the literature is at best only able to draw minimal conclusions which seem to depend on partisan grounds. So the question that remains is one of values: How many hours a week do we think the lowest paid person in our society should have to work in order to survive, or to feed their family?

Subscribe to our email news for the latest content!

Subscribe to our email news and stay up to date on the latest content published by The Common Reader. 

This Just In! Subscribe to our email news.

Subscribe to our email news for the latest content on
The Common Reader. 

Subscribe
Subscribe to our "Mixed Issue" email newsletter!