A recent column by A. Barton Hinkle in the Richmond Times-Dispatch (and also on the Reason Foundation web page) about minimum wage increases is getting a lot of attention in conservative intellectual circles. In the piece, Hinkle compares climate denial to skepticism expressed about a recent study on the effects of Seattle’s increase in its minimum wage.
Before challenging Hinkle’s argument directly, let me step back and highlights a fundamental flaw of his thinking and that of other self-proclaimed “free-market think tank” economists: they’ve forgotten the real goal of “public policy” (i.e., a better world). These conservatives have come to see the market as an end rather than as a means (in some cases) to a better world. But the ends of public policy are not an “unregulated market” – or a “small government,” lower taxes (especially for the rich), and the rest of the mantra. The ends are an economy that improves people’s lives, is environmentally sustainable, and supports robust democracy. When the market, complemented by public investment and smart regulation, promotes efficiency and innovation, that’s great. But in the past several decades, our market has led to poverty-wage jobs, unprecedented inequality, and wealth concentration that subverts democracy. That’s what creates the need for regulations powerful enough to recreate an economy that works for all – such as a $15 per hour minimum wage. Hinkle is hung up on the narrow question of $15 per hour minimum wage pro or con, with a predisposition to con. He and his compatriots have nothing to say on the broader and more important question of how to create an economy that works for all.
Now to the narrower issue of the impacts of minimum-wage increases. Hinkle contends that liberal academics and commentators have refused to accept the results of a new University of Washington minimum wage study in the same way that climate change deniers refuse to accept the consensus of the scientific community on man-made global warming:
“Since its publication, liberals have given the study hyper-skeptical treatment, claiming to find all sorts of shortcomings with its methodology, data set, and so on. They point to a different study, from the University of California at Berkeley, which examined the law’s effects on the restaurant industry and found no statistically measurable effect.”
Hinkle does a decent job of recapitulating the mammoth amount of peer-reviewed research that “all seems to point in one direction” and documents human-induced global warning. In so doing, he completely undermines his own analogy. There is now one new minimum-wage study that claims larger negative employment impacts. There is a much larger body of high-quality, peer-reviewed research (see, for example, this review) that finds little or no employment effects from modest minimum wage increases –as well as, to be fair, a larger body of research that shows some employment effects. Given the voluminous literature pointing in two directions, to suggest that those challenging the new study of the Seattle minimum wage increase are in the same position as climate change deniers is wrong. In fact, it’s backwards: to make his analogy Hinkle has to ignore the larger body of research showing small or no employment effects, which makes him and those embracing his argument, well, “economic science deniers.” Going forward, as with other research where a consensus does not exist, the data for Seattle – and other places phasing in increases to $15 per hour – will be examined and a larger body of studies will sort out whether the UW researchers’ methods (criticized here by the Economic Policy Institute) drove their unusual results.
While Hinkle is off base, his opinion piece does raise the question of whether proponents of higher minimum-wage increases have relied too much recently on statistical studies of state and now local minimum-wage increases. In addition to these studies, there are a powerful set of historical, policy, and international comparative arguments in favor of a higher minimum wage. This four-pronged combination makes a stronger argument for phasing in a $15 per hour minimum wage and then increasing the minimum wage over time in line with productivity growth (as we did before 1968).
The historical argument. The U.S. minimum wage doubled in inflation-adjusted terms from the mid-1940s to the late 1960s and those were years of unprecedented low unemployment. The higher minimum wage likely contributed to the low unemployment – by increasing the incomes of moderate- and low-income families that benefit most from minimum wage increases. These families also spent most of what they earn, and their rising incomes increased consumption of products and services, and job creation. Far from destroying jobs, the historical evidence suggests, minimum wages can be part of a policy approach that boosts job growth. Another part of the historical argument, backed also by contemporary industry-specific evidence, is that a higher minimum wage boosts productivity and quality/customer service. By encouraging companies to compete in more creative ways that exploiting vulnerable workers, a higher minimum wage increases living standards over time.
The policy argument. We can combine minimum wage increases with other policies that create jobs. Considered in isolation, higher minimum wages have competing effects on job creation (on these competing effects, this article is again a useful resource). But as a policy matter, higher minimum wages do not have to be considered in isolation – there are other tools in the toolkit that can ensure that we get sufficient job creation and low unemployment. If we are creative, we can usually have the best of both worlds: more jobs that support a family AND enough jobs and paid work to go around. The most obvious tool at the federal level in the past has been monetary and fiscal policy. In the future, we’ll need shorter work time and possibly more public job creation in combination with a higher minimum wage and more unions to achieve low unemployment and rising incomes for all families. At the state and local level, policies that increase jobs by reducing work time could include state or local versions of the proposed Obama overtime rule (shortening work hours for lower-paid salaried workers) that was derailed by a Texas court (Pennsylvania’s Governor could do this through regulation, for example), or direct job creation.
International comparisons. Many countries with high minimum wages have moderate or low unemployment (as seen here). For example, two of the three counties with the highest minimum wages (in purchasing power parity terms), Australia and Luxemburg, have an unemployment rate just below the OECD average, while the other, Belgium, has one above. Some enterprising researcher should do a comprehensive international study of the impact of minimum wages on national unemployment rates, but here are our hypotheses: relative to many other factors that influence unemployment rates, the impact of the level of the minimum wage is small; second, the international evidence buttresses the policy argument – some countries combine higher minimum wages with other policies that achieve job growth and wage/income equity.
Taking all the evidence together, in a country in which income growth has stagnated for the bottom 50% since 1980, policymakers have the freedom – in fact, the responsibility – to push the minimum wage up significantly.
In the end, debates about the minimum wage – and other economic policies – should focus on our goals as a nation and state. How can we create a dynamic, environmentally sustainable economy that lifts all boats and supports core American and Pennsylvania values – fair reward for hard work, the American Dream of widespread opportunity, responsive government? If your real attachment is to a set of policies (deregulated markets, smaller government, low taxes) without regard to the kind of country they create, you’re off base.