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Economists on the Minimum Wage

3/14/2013

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The University of Chicago Booth School of Business asked 38 economists whether they agreed with the following statement:

The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

18 economists agreed and only 4 disagreed (the rest weren't sure). That's a sharp contrast to what we teach in introductory economics, where we show all the ways that minimum wage laws causes problems. Why the disparity?

Economists basically agree on the mechanics of how the minimum wage works, and that it causes problems. But some empirical studies seem to suggest that the damage caused by a moderate increase in the U.S. minimum wage may be small. So the economists who agreed were saying that they think the damage done is small, and that they feel it's worth it to help the workers whose wages will be raised by the minimum wage laws.

I would disagree for the following reasons:

First, as several of the respondents noted in the comments, the Earned Income Tax Credit (EITC) would be a better way to help the poor. The EITC basically takes money from the rich and gives it to the working poor. It's very effective, does less damage, and is targeted to the poor.  I just don't see why we would want to use the minimum wage instead. I think that if the question had explicitly featured the EITC as an alternative, many would have chosen the EITC. Tellingly, one respondent agreed with the minimum wage hike, but noted in the comments that the EITC would have been preferable.

Second, the full effects of minimum wage laws are complex. An accurate calculation of who's helped, who's hurt, and by how much, is impossible. Even the best empirical studies are feeble attempts to grasp an incredibly complex reality. Indeed the studies referred to don't tell us where the burden of the minimum wage falls. Where is the money coming from? The moderately wealthy? The super-wealthy? The middle-class? The poor? So I prefer to rely on a clean mechanism to help the poor (the EITC) than a bad mechanism which empirical studies suggest may not be terrible (the minimum wage).

Third, what Bryan Kaplan said in his excellent post: The Myopic Empiricism of the Minimum Wage.
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    Ben Mathew

    Author of Economics: The Remarkable Story of How the Economy Works

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