Commentary: Please pump the brakes on a $15 minimum wage

Courtsey of 401(K) 2012, Flickr Creative Commons.
Courtesy of 401(K) 2012, Flickr Creative Commons.

There is nothing wrong with supporting a modest increase of the federal minimum wage. Federal increases to $9 or $10.10 per hour have empirical support demonstrating wealth transfers to minimum wage workers at the expense of little to no rise in unemployment.

Additionally, more than 600 economists, including prominent economists from top schools and several Nobel Prize winners, have publicly supported an increase to $10.10.

Conversely, there is nothing wrong with not supporting an increase in the federal minimum wage either. More than 500 economists, including prominent economists from top schools and several Nobel Prize winners, signed a letter rejecting an increase in the minimum wage.

Their concerns include whatever unemployment is caused by an increase in the minimum wage tends to disproportionately impact those with the fewest skills/are generally the worst off, significantly better means of assisting those in poverty exist, those who earn the minimum wage are not the same as poor workers, and it is far from a panacea for low-skilled workers.

Both positions are valid and have widespread support.

What has zero legitimate basis is the Democratic National Committee’s recent unanimously approved resolution of a federal minimum wage of $15 per hour, more than a 200 percent increase and a nearly $5 inflation-adjusted historical high.

To put this in perspective, progressive economist Arin Dube, who is arguably the leading minimum wage scholar, advocates for a federal minimum wage set to 50 percent of a state and/or major metropolitan area’s median income as the optimal ceiling for the minimum wage.

Dube finds the optimal minimum wage to be as high as $12.45 in Massachusetts and $13.51 for Washington D.C., while as low as $7.97 in Mississippi and $8.55 in Miami. He writes:

…a one-size-fits-all approach creates avoidable trade-offs: states as dissimilar as Massachusetts and Mississippi have different capacities to absorb a minimum wage of, say, $11.00 per hour, and a single minimum wage has to balance the needs of states at both ends of the spectrum. By allowing some variation across states, we can raise, say, the Massachusetts minimum wage to a reasonably high level while not putting, say, Mississippi at risk.

Again, I emphasize that is the maximum minimum wage that has support from economists. No intellectually honest economist supports a $15 federal minimum wage.

“Economists” who support a $15 minimum wage

A few weeks back I made a similar declaration and was linked this list of 200 “economists” who support a $15 federal minimum wage, courtesy of the Sanders’ campaign.

This list screams to me like one of those lists showing “scientists” who deny the existence of Global Warming or evolution.

The biggest red flag should be there are literally zero signatories from top programs such as MIT, Chicago, Harvard or Stanford. There are also zero Nobel laureates.

Meanwhile, the list tries to pass off pundits who apparently have the audacity to claim they are economists, like Robert Reich.

Glancing at the list, there are PhDs in sociology and feminist studies who are trying to claim to be economists as well. There is nothing wrong with being a sociology or feminist studies professor, but when it comes to landing on the moon, it is likely best to listen to rocket scientists and not biologists on how to get there.

By my count, after looking at the CVs of everybody on that list, more than 1/5 were sociologists, pundits, historians, lawyers, etc. making the claim they were an economist.

A small amount of signatories I could not find, but of the remaining 131 individuals who I could verify had a Ph.D. or near equivalent in economics, a plurality of 30 received their degrees at and/or teach at the University of Massachusetts-Amherst.

There is nothing dubious about this per se; however, it should be noted UMass Amherst has an extremely fringe economics department and is more or less the only institution that offers a degree in Marxist economics. Other fringe schools with many signatories include The New School for Social Research and the University of Missouri-Kansas City.

I should note, not everyone with a background at UMass-Amherst specifically is a Marxist either, for example, that is where Dube (whose signature is absent) teaches. However, it is telling so many of the actual economists hail from a handful of institutions of far from stellar repute.

What happens at a $15 minimum wage?

It is much easier to say a $15 federal minimum wage would be bad than it is to figure out how harmful it would be exactly.

One place to start would be looking at the effects of the city of Los Angeles’ minimum wage for hotel workers of $15.37, which went into effect for hotels of 300+ rooms this July.

The Bureau of Labor Statistics data that is available (for Los Angeles County, not the city) shows hotel employment to be decreasing as if it was facing a recession.

It is still early to examine properly the effects of the wage increase and it will not go into effect for hotels of 150-300 rooms until next year, but Adam Ozimek of Moody’s Analytics writes:

The service sector, and hotels in particular, should be less responsive to minimum wage hikes than many other lower wage employers. Tourism industries should be less price elastic than tradeables like manufacturing, and hotels don’t have a lot of alternatives, which makes transitioning the building to some less-labor-intensive use less likely. Hotels, in other words, should have been more safe. Instead, they seem to be taking a big hit. While what we are seeing in Los Angeles so far is nowhere near conclusive, it should worry those who have been less concerned about big minimum wage hikes. (emphasis added)

I would also emphasize Los Angeles’ comparatively high median income would enable it to handle a shock of a $15 minimum wage better than most other cities and regions in the U.S.

Other places in the world where the minimum wage is clearly too high include Puerto Rico.

In 2010, the median household income in Puerto Rico was $19,370. For perspective, Mississippi had the lowest median state income at $37,838, roughly twice Puerto Rico’s.

Puerto Rico is subject to the federal minimum wage of $7.25, despite this tremendous difference. There the minimum wage is equivalent to 77 percent of per capita Puerto Rican income, in contrast to only 28 percent on the mainland.

With this in mind and with such a huge proportion of workers earning the minimum wage, it comes as no shock the IMF credited the minimum wage with causing, “The single most telling statistic in Puerto Rico is that only 40% of the adult population – versus 63% on the US mainland – is employed or looking for work; the rest are economically idle or working in the grey economy.”

Although the mainland U.S. is better equipped to manage a $15 minimum wage than Puerto Rico can handle $7.25, the negative effects of a minimum wage set far too high are incredibly dangerous.

Surely whatever benefits may come from a $15 minimum wage are vastly outweighed by these costs. One would be incredibly hard-pressed to find a prominent economist who says otherwise.

Wyatt Bush is the assistant editor for CMU Insider. You can email him at wyattbush@gmail.com. 

Views expressed in opinion and commentary articles do not necessarily reflect the views of management or employees of CMU Insider. 


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