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Monday, February 18, 2013

Raising the minimum wage makes sense

Posted By on Mon, Feb 18, 2013 at 6:20 AM

The Arkansas minimum wage is $6.25 an hour. A full-time worker can gross $250 a week ($13,000 a year with no vacations) at that rate. That's plenty, according to the likes of Rep. Debra Hobbs, who once said if her cleaning lady would just work a few more hours, she could afford to buy her own health insurance and not look for government to pay for her shiftless self.

(Forget for the purposes of this discussion that Rep. Hobbs can qualify for a taxpayer payment of more than $10,300 a year for solid gold family health insurance coverage.)

A proposal pends to raise the Arkansas minimum wage. Nationally, President Obama has called for raising the federal minimum wage from the current $7.25 to $9. Paul Krugman makes the case for the increase today and answers those who says it's bad for business.

Fairness is a good place to start. Adjusted for inflation, the current minimum wage is lower than it was in the 1960s. But wouldn't it harm business?

... there’s evidence on that question — lots and lots of evidence, because the minimum wage is one of the most studied issues in all of economics. U.S. experience, it turns out, offers many “natural experiments” here, in which one state raises its minimum wage while others do not. And while there are dissenters, as there always are, the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment. [Think Arkansas. We've always trailed most of the country in our own minimum wage. Look around you at the prosperity that's produced. Think Right to Work Law, too. Think crummy workers compensation. Etc.]

Why is this true? That’s a subject of continuing research, but one theme in all the explanations is that workers aren’t bushels of wheat or even Manhattan apartments; they’re human beings, and the human relationships involved in hiring and firing are inevitably more complex than markets for mere commodities. And one byproduct of this human complexity seems to be that modest increases in wages for the least-paid don’t necessarily reduce the number of jobs.

What this means, in turn, is that the main effect of a rise in minimum wages is a rise in the incomes of hard-working but low-paid Americans — which is, of course, what we’re trying to accomplish.

Finally, it’s important to understand how the minimum wage interacts with other policies aimed at helping lower-paid workers, in particular the earned-income tax credit, which helps low-income families who help themselves. The tax credit — which has traditionally had bipartisan support, although that may be ending — is also good policy. But it has a well-known defect: Some of its benefits end up flowing not to workers but to employers, in the form of lower wages. And guess what? An increase in the minimum wage helps correct this defect. It turns out that the tax credit and the minimum wage aren’t competing policies, they’re complementary policies that work best in tandem.

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