The Politics Of Raising The Minimum Wage

February 16, 2013 8:00 AM

... LEONHARDT: Raising the minimum wage pretty clearly helps low-wage workers. I think sometimes you hear it described as some sort of free lunch and other times you hear it described as an economic calamity, and I don't think it's either of those ...

LEONHARDT: Because what happens when companies have to pay higher wages, the evidence suggests, is that although it may have some modest effect on employment, it doesn't have a big effect on employment. And so what that means is that the companies absorb the higher wages. And they absorb them either through taking a hit to their profit or they raise their prices, which means that essentially it comes out of all of their customers, which is to say the society as a whole. So, you can think of it as moving some income from the middle and the top toward the bottom ...

LEONHARDT: ... When economists have gone and looked at this, the answers are in a pretty clear range, that it doesn't have huge effects on the size of employment. So, for example, they looked at two neighboring states - one of which raised it minimum wage and one of which didn't - and you don't see that because the minimum wage goes up by 10 percent, the employment at businesses that employ low-wage workers go down by 10 percent. It's much smaller than that. In fact, in some cases, it appears to be zero ...

LEONHARDT: ... But you're putting it right back into the pockets of low-wage workers, and low-wage workers spend a very large percentage of their income - larger than middle-income or upper-income workers. So, if you think about that dynamic, you can see why historically raising the minimum wage has not had some sort of huge macroeconomic effect. It's instead more redistributing wages among different groups. And it's important to say here that low-income workers have done among the worst of any group over the 20 or 30 years ...

http://www.npr.org/2013/02/16/172175217/the-politics-of-raising-the-minimum-wage